What happened

Shares of PubMatic (PUBM 1.75%) dropped 31.7% this week, according to data provided by S&P Global Market Intelligence, after the programmatic advertising technology specialist announced solid second-quarter 2023 results, but followed with conservative forward guidance.

To be sure, the entirety of Pubmatic's decline this week came on Wednesday after the company told investors its quarterly revenue grew a modest 0.5% year over year to $63.3 million, which was technically above both analysts' estimates (for sales of $59.8 million) and guidance provided in May (for a range of $58 million to $61 million). On the bottom line, that translated to non-GAAP (adjusted) net income of $1.3 million, or $0.02 per share, down significantly from $0.23 per share a year earlier -- but again well above Wall Street's models calling for an adjusted net loss of $0.01 per share.

So what

Meanwhile, PubMatic grew its number of active publishers on the platform by 13% year over year, monetizing inventory from over 1,750 publishers and app developers. Revenue from omnichannel video -- including desktop, mobile, and connected TV (CTV) devices -- grew to 31% of total revenue during the quarter. CTV revenue, in particular, grew by over 30% year over year.

"As the market consolidates, we are in a strong position despite macro headwinds," stated Pubmatic co-founder and CEO Rajeev Goel. "I am confident in our growing list of long-term revenue drivers and ability to gain market share." 

Goel added that new products such as Activate and Convert have expanded its total addressable market by over $75 billion. 

Pubmatic's quarter wasn't perfect, however; adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) arrived at $12 million, below guidance for a range of $13 million to $15 million and down from $23 million in the same year-ago period. Net dollar-based retention also contracted to 100% for the trailing 12 months ended June 30, 2023, down from 130% a year earlier.

Now what

Looking ahead, PubMatic says macroeconomic headwinds continue to hold back its overall growth as "advertisers remain cautious, particularly with respect to brand advertising." 

As such, PubMatic issued guidance for third-quarter revenue of between $58 million and $61 million -- down around 7.8% year over year at the midpoint and far below analysts' consensus estimates for revenue of around $66.3 million. 

In the end, this modest quarterly beat simply wasn't enough to offset PubMatic's disappointing outlook, and its stock declined accordingly.