Following a slew of disappointing earnings reports from companies reliant on digital advertising revenue (barring a few exceptions), investors likely weren't expecting anything impressive from advertising technology company PubMatic (PUBM -0.14%) when it released its fourth-quarter results after the bell on Tuesday.

Investors had a pretty good heads-up about the challenges the company was facing; management had provided underwhelming fourth-quarter revenue guidance when it reported its third-quarter results. So it might not come as much of a surprise to hear that PubMatic's fourth-quarter revenue fell 2% year over year.

What was the culprit behind the sudden weakness relative to its strong full-year results and its consistently robust growth since its initial public offering in 2020? An uncertain and challenging macroeconomic environment.

With Facebook parent Meta Platforms reporting a 4% year-over-year decline in fourth-quarter revenue, and Google parent Alphabet reporting a similar decline in its total advertising revenue, it's safe to say the hit to digital advertising has largely been industrywide.

Here's a closer look at PubMatic's results, as well as what to expect from the provider of a sell-side advertising platform.

Macro headwinds

Fourth-quarter revenue was $74.3 million, down about 2% year over year. This was notably shy of the company's guidance for revenue between $75 million and $78 million. The midpoint of this guidance range would have translated to 1% year-over-year growth.

Net income under generally accepted accounting principles (GAAP) was $12.8 million, down from $28.2 million a year ago. Non-GAAP net income for the quarter fell from $27.1 million in the year-ago quarter to $18.7 million. 

It was "a challenging second half," chief financial officer Steve Pantelick said in the company's fourth-quarter earnings release, "particularly in December, when mobile and desktop display revenue was impacted by unprecedented, industrywide ad spend declines." Despite the challenges it has faced recently, PubMatic is satisfied with how it is faring; Pantelick said the company "effectively navigated" the challenges.

Management's guidance suggests it expects headwinds to persist. The company guided for first-quarter revenue between $50 million and $52 million, down from revenue of $54.6 million in the first quarter of 2022. This would extend a challenging period for the company to three quarters. Macro factors initially started weighing on PubMatic in the third quarter, when year-over-year revenue growth slowed from 27% in the second quarter to 11% in the third.

Important momentum in video

On a brighter note, management said that omnichannel video revenue increased 25% year over year during the quarter. This growth, despite the challenges, highlights the resilience of what is arguably the company's most important long-term driver. This channel, which includes revenue from ad spend on videos across desktop, mobile, and connected TV, accounted for 34% of the company's total revenue.

This momentum comes as the company has focused more of its resources toward CTV, online video, and other higher-growth formats -- a move that CEO Rajeev Goel believes "will diversify our revenue mix while delivering strong, profitable growth," he said in the fourth-quarter earnings release.

While conditions remain challenging for the company, it believes investments it is making today will position it well in the future, when growth in ad spend finally reaccelerates.

For what it's worth, the debt-free company is putting its money where its mouth is. The board of directors has authorized a $75 million share repurchase program. This is a meaningful sum, equal to about 10% of its current market capitalization. The board clearly believes PubMatic will weather this storm and come out better on the other side.