Don’t sleep on this small adtech leader
Jamie Louko (PubMatic): Don’t let PubMatic’s small, $978 million market capitalization fool you, PubMatic is a dominant force in the advertising space. The company operates on the sell side of the advertising technology (adtech) market, meaning that it helps publishers fill their available ad inventory. Despite its size, PubMatic is one of the top dogs in this fragmented space, with 3% to 4% market share at the start of 2022.
Unlike the independent buy side of the market, where The Trade Desk (TTD 3.49%) dominates, the sell side is much more fragmented. Magnite (MGNI 6.40%) is PubMatic's primary rival, but PubMatic looks much more appealing than Magnite for a few reasons.
First is the company’s growth rates. Magnite has been expanding primarily by acquiring other businesses, but PubMatic’s adoption has been solely organic. Therefore, PubMatic’s organic growth rates have been much higher than Magnite’s. In Q2, PubMatic saw revenue jump 27% year over year, while Magnite only increased revenue by 7% on a pro-forma basis. This is also true in the connected TV (CTV) space. Magnite saw CTV revenue jump 19% organically in Q2 compared to the year-ago period, while PubMatic saw growth of 150% over the same period. As digital and CTV advertising become more prevalent, PubMatic looks better positioned to capitalize fully.
The other way PubMatic stands out is in its profitability. It has been profitable on a net income and an adjusted EBITDA basis for 13 and 25 quarters, respectively, and in Q2, PubMatic posted an adjusted EBITDA margin of 37%. Comparatively, Magnite hasn’t consistently generated positive trailing-12-month net income since it came public in 2014.
This profitability has allowed PubMatic to invest heavily into developing the best platform to gain market share. Judging by the growth rates of the two companies, it is working. This could allow PubMatic to take a large chunk of this lucrative digital advertising market, and at just 19.5 times earnings, you can buy this hidden gem for a decent valuation today.
