What happened
Shares of advertising technology company PubMatic (PUBM 1.75%) have soared this year. Through the first half of the year, the growth stock was up 42.7%, according to S&P Global Market Intelligence. But shares have risen sharply in July, too, bringing the stock's total year-to-date gain to more than 49% as of this writing.
The stock has benefited from both upbeat sentiment in the overall market (particularly toward tech stocks) and good execution from the company as it weathers an uncertain macroeconomic environment.
So what
Capturing the company's strong execution, PubMatic's first-quarter revenue was about flat from a year ago, but was ahead of management's guidance for the period. The lull in the company's revenue growth is likely viewed by most investors as a temporary trend due to constrained advertising budgets amid macroeconomic uncertainty. Indeed, analyst forecasts, on average, call for PubMatic to return to double-digit year-over-year revenue growth by the fourth quarter of 2023.
One area of PubMatic's business that investors should be happy about is its progress with supply path optimization, or the trend of advertising agencies and brands making deals with PubMatic to bring a certain amount of demand to its platform. More than a third of the activity on PubMatic's platform during its first quarter fell under these deals. Management contends that the growing percentage of activity on its platform from supply path optimization highlights its solutions' increased stickiness to publishers and ad buyers.
Though some of the company's execution may explain part of the stock's run-up this year, most of it is likely simply due to momentum in tech stocks overall. The market's strong appetite for tech stocks is evidenced by the tech-heavy Nasdaq Composite's 33% year-to-date gain.
Now what
Despite an uncertain macroeconomic environment, PubMatic is confident enough in its business to continue providing quarterly revenue guidance. But the outlook management provided in its first-quarter update certainly wasn't the type of update you'd expect to drive shares sharply higher in the weeks following the report. PubMatic said it expected second-quarter revenue to be between $58 million and $61 million. The midpoint of this guidance range is well below the $63 million in second-quarter revenue PubMatic achieved last year.
To be fair, management's guidance was likely conservative. PubMatic said in its first-quarter update that its guidance accounted for an environment with cautious advertisers as "new sources of uncertainty have emerged that may impact consumer spending such as U.S. Fed interest rate plans, the growing realization that inflation is stickier than expected, and the effect of tightening credit conditions related to debt ceiling discussions and U.S. banking system concerns." Given how well the consumer spending appears to have held up since PubMatic's first-quarter report, PubMatic's second-quarter revenue could come in higher than anticipated.
