This year has not been kind to tech stocks, but savvy investors can find excellent companies with depressed share prices. One such stock near its 52-week low of $14.73 is advertising tech firm PubMatic (PUBM -1.64%).

PubMatic's business has been successful, growing in both revenue and customers, but its stock is among the casualties of this year's tech sector decline. Shares are down over 60% from PubMatic's 52-week high of $43.65 in November, and are even below its IPO price of $20.

Yet PubMatic benefits from growth in digital advertising. Forecasts predict the U.S. advertising industry will see digital ad spending climb from $211 billion last year to $315 billion by 2025. 

Along with industry growth serving as a tailwind, other factors make PubMatic a good long-term investment. Let's take a look at why PubMatic is a compelling buy amid the current downturn in tech stocks.

PubMatic's rising revenue

PubMatic's business centers around a digital advertising platform that assists content owners, referred to as publishers, to generate income from ads. The publishers provide space for ads on their websites, mobile apps, and videos, while PubMatic's platform delivers the ads for a fee.

This model has worked well for PubMatic, enabling the company to grow revenue by double digits for years.

Year Revenue YOY growth
2021 $226.9 million 53%
2020 $148.7 million 31%
2019 $113.9 million 15%

Data source: PubMatic. YOY = year-over-year.

PubMatic's first-quarter revenue continued the trend, hitting $54.6 million, a 25% year-over-year increase. The company expects 2022 revenue to reach at least $282 million, a 24% jump over the prior year.

PubMatic is well positioned to continue its sales growth. Its platform supports digital advertising across a variety of formats, including connected TV (CTV). Its ability to support mobile, video, and CTV advertising drove 67% of the company's Q1 revenue.

Thanks to the explosion of streaming services fueling a shift of advertising dollars to connected TVs, PubMatic's Q1 CTV revenue soared by more than five times last year's amount. Industry forecasts predict CTV ad spending will expand from $14 billion last year to nearly $39 billion in 2026, driving PubMatic's CTV revenue growth for years.

PubMatic's strengths in other areas

Revenue growth is just one of PubMatic's strengths. The company is also succeeding in a number of other areas.

Take net income, for example. While many tech companies operate at a loss for years, PubMatic has been profitable for some time, and rapidly increasing net income.

Year Net income YOY growth
2021 $56.6 million 113%
2020 $26.6 million 301%
2019 $6.6 million 50%

Data source: PubMatic. YOY = year-over-year.

The company also generates excellent free cash flow. PubMatic exited Q1 with $15 million in free cash flow, up from $9 million last year. And its balance sheet is solid with $497.6 million in total assets compared to $229.9 million in total liabilities at the end of Q1.

Moreover, PubMatic is successfully expanding its customer base. The company counts nearly 1,500 publishers as customers at the end of Q1, including large brands such as Yahoo and News Corp. That's a 20% increase from the 1,250 publishers it had at the end of Q1 last year.

This has led to PubMatic delivering more ads, which helps the company grow revenue. The number of times consumers viewed digital ads delivered by PubMatic in Q1 increased 76% year over year to 32.6 trillion.

More reasons to invest

With all its success, PubMatic isn't sitting on its laurels. The company continues to evolve its technology. Its latest focus is around supporting retailers, such as grocery stores, wishing to generate revenue from advertising.

The retail segment of the U.S. ad industry is forecasted to grow from $31.5 billion last year to $52.2 billion in 2023. Since PubMatic generated 60% of its Q1 revenue in the U.S., retail-related advertising can serve as a significant source of future sales growth.

Despite the company's many positives, the possibility of a recession casts a shadow on PubMatic's revenue growth in the near term. But if a recession hits, research shows stocks tend to bounce back stronger, particularly the tech-heavy Nasdaq, where PubMatic is listed.

So over the long run, an investment in PubMatic has the potential to do well. And now is an opportune time to pick up PubMatic stock, as it was beaten down further in July after Netflix picked Microsoft to power the entertainment giant's new advertising-supported streaming product.

The company's superb financials and long trend of rising revenue make PubMatic an excellent investment to buy and hold for the long term.