Shares of advertising technology (adtech) company PubMatic (PUBM 1.75%) rose 37.9% during February, according to data provided by S&P Global Market Intelligence. The stock meandered along for most of the month before skyrocketing right at the end. The sharp rise in late February coincided with the company's latest financial report.
The report in question was for PubMatic's fourth quarter of 2023. It came out on Feb. 26 and showed that the company generated quarterly revenue of nearly $85 million, up 14% year over year. For perspective, management had expected Q4 revenue of only $76 million to $80 million.
Not only did it solidly outperform management's guidance, but PubMatic's 14% top-line growth was its best growth rate in over a year, as the chart below shows.
PUBM Revenue (Quarterly YoY Growth) data by YCharts. YoY = year over year.
Moreover, PubMatic's management expects to grow revenue by 10% in 2024, which is better than its 4% full-year growth in 2023. Therefore, the market is excited that business is picking back up.
Why it matters
Of course, it's not so much that PubMatic's growth rate went up -- it's why. The adtech space has been in a slump for various reasons, and some companies are still struggling. But PubMatic is returning to growth faster than some of its peers due to its ability to gain new customers.
PubMatic's growing customer base resulted in a higher number of ad impressions -- the number of times ads were displayed. In 2023, the company's ad impressions were up 32% from 2022.
Additionally, PubMatic was able to reduce its expenses, meaning its growth was profitable as well. The company's cost to deliver 1,000 ad impressions went down by 8%. This improvement contributed to its full-year free cash flow of nearly $53 million, which was up 38% year over year.
What now?
PubMatic stock has nearly doubled from its 52-week low, but shares still look attractively priced today. The company is valued at about 20 times its forward free cash flow, which is reasonable.
It's important to note that PubMatic's ad impressions are growing faster than its revenue, suggesting its ad prices are still facing headwinds. However, if the advertising space heats back up, this could provide an unexpected tailwind to the business.
PubMatic's management is also taking advantage of what it believes to be a cheap stock price. It's authorized to buy back over $115 million of its stock, which is about 11% of its shares outstanding at today's price.
In summary, PubMatic is growing despite industry headwinds, and its growth rate could pick up when the headwinds abate. The company is profitable and cheaply valued, which could make this stock a buy today, even after its big gains in February.
