What happened
Shares of PubMatic (PUBM +0.69%) were gaining last month after the ad tech company turned in a better-than-expected second-quarter earnings report. According to data from S&P Global Market Intelligence, the stock finished August up 18% as the company bucked expectations after several digital advertising companies posted weak quarterly numbers.
As you can see from the chart below, the stock soared on its earnings report but then gave back some of those gains over the rest of the month.
So what
PubMatic operates a supply side platform (SSP), meaning it helps publishers like websites manage inventory efficiently and maximize ad revenue.
The company actually started off the quarter on the wrong foot; it got an analyst downgrade as KeyBanc's Justin Patterson said the ad industry had entered a modest recession.
However, the stock quickly recovered from the brief decline to start the month as investors seemed optimistic that the country would escape a recession after a strong jobs report came out for July, and as corporate earnings were mostly solid in the second quarter.
On Aug. 9, the stock jumped 24% as PubMatic delivered a strong second-quarter earnings report. Revenue rose 27% to $63 million, beating estimates of $60.8 million. Dollar-based net retention was 130% over the last four quarters, showing existing customers increased their spending by 30%, and the company said it processed 36.2 trillion impressions in the quarter, up 79% from the year-ago quarter.
Bottom-line growth was also solid with adjusted EBITDA up 24% to $23 million, or a 37% EBITDA margin. Adjusted earnings per share were flat at $0.23.
CEO Rajeev Goel said, "We delivered another terrific quarter, with organic revenue growth of 27% year over year, well above market growth rates. Our results demonstrate the number and magnitude of growth opportunities we have incorporated into our business, as we continue to consolidate the market."
Over the second half of the month, the stock fell as fears of rising interest rates and a recession crept back into the market on hawkish comments from Federal Reserve Chair Jerome Powell.
Now what
Management said it was taking a conservative approach to third-quarter guidance, forecasting revenue of $66 million to $68 million, or a growth rate of 15%. It sees adjusted EBITDA of $23 million to $25 million, or a margin of 36%, in the quarter.
Despite the macro-level headwinds, PubMatic's growth opportunity looks appealing, especially with the rapid growth in connected TV, or ad-driven streaming, and the ad tech stock's underlying profitability remains strong.
