Pubmatic (PUBM) Plunges 26% on Earnings Optimism: What’s Fueling the Selloff?

Summary
• Pubmatic’s Q2 2025 earnings beat revenue and EBITDA estimates, with CTV revenue up 50% YoY.
• Shares trade at $7.82, down 26% from $10.57, hitting an intraday low of $7.01.
• Options activity surges, with 100,000+ contracts traded in the 7.5-strike September puts.
• RSI at 28.11 and MACD at -0.32 signal oversold conditions and bearish momentum.

Pubmatic’s stock has cratered 26% intraday despite outperforming earnings and revenue guidance, sparking questions about market sentiment. The selloff defies the company’s strong CTV growth and $117.6M cash reserves. With options volatility spiking and technical indicators flashing red, traders are scrambling to decode the move.

Earnings Optimism vs. DSP Dependency Risks
The selloff stems from a disconnect between Pubmatic’s operational strength and market concerns over its reliance on a top DSP partner. While Q2 revenue grew 6% to $71.1M and CTV revenue surged 50% YoY, CFO Steve Pantelick warned of a near-term ad spend reduction from a key DSP client. This triggered a sell-off as investors recalibrated expectations for Q3 guidance, which now includes a $61–66M revenue range. The stock’s 26% drop reflects fears of margin compression and earnings volatility, despite the company’s $14.2M adjusted EBITDA and $117.6M cash position.

Advertising Sector Volatility: TTD Rises as PUBM Falls
The Advertising & Marketing Agencies sector is mixed, with The Trade Desk (TTD) up 1.65% on improved CTV and DSP offerings. Pubmatic’s 26% decline contrasts with sector resilience, highlighting its unique exposure to DSP concentration risks. While TTD benefits from streaming ad growth, Pubmatic’s earnings depend on a smaller set of buyers, amplifying its volatility.

Options and ETF Plays for a Volatile PUBM
• 200-day average: 12.85 (below current price)
• RSI: 28.11 (oversold)
• MACD: -0.32 (bearish)
• Bollinger Bands: 13.37 (upper), 10.68 (lower)

Pubmatic’s technicals suggest a short-term rebound from oversold levels but long-term bearish trends. Key support at $7.01 (intraday low) and resistance at $12.02 (200-day SMA). The PUBM20250919P7.5 put option (7.5-strike, 53% IV, 19.54% leverage) offers high leverage for a 5% downside scenario, with a projected payoff of $0.82. The PUBM20250919C7.5 call (7.5-strike, 53% IV, 9.42% leverage) is a speculative play if the stock rebounds above $7.50. Both contracts have high liquidity (turnover: 23,622 and 44,823) and moderate delta (0.689 and -0.3298), balancing directional risk and reward. Aggressive traders may consider the 7.5-strike puts for a bearish bet, while cautious bulls could use the 10-strike October calls (PUBM20251017C10) for a longer-term play.

Backtest Pubmatic Stock Performance
The performance of PubMatic (PUBM) following a significant intraday plunge of 26% provides a valuable case study for analyzing market reactions to earnings-related volatility. Here's a detailed assessment:1. Post-Plunge Performance: - Short-Term Recovery: After the initial 26% drop, PUBM's stock exhibited a brief recovery phase. However, the overall trend remained negative, reflecting ongoing investor concerns about the company's financial health and growth prospects. - Long-Term Impact: Over the longer term, the stock continued to face downward pressure, declining further by an additional 22.68% month-to-date, as of the latest reports. This prolonged weakness suggests that the market may have been anticipating further negative developments or may have adjusted its expectations downward significantly.2. Earnings-Related Factors: - Q2 2025 Earnings: PubMatic's reported Q2 2025 earnings revealed a sharp loss amid revenue growth. The company posted a net loss of $5.21 million, marking a 364.2% deterioration from the previous year's net income. This significant earnings shortfall likely contributed to the stock's negative reaction. - Stock Price Reaction to Earnings: Following the earnings release, PubMatic's stock fell by 3.29%, closing at $10.93. The disappointing EPS of $0.05, which fell short of the forecasted -$0.16, surprised analysts with a -131.25% deviation. This mixed performance, with positive revenue growth but a significant earnings miss, likely led to investor disappointment and subsequent selling pressure.3. Market Sentiment and Analysts' Views: - Downgrade by B.Riley: Shortly after the earnings release, B.Riley downgraded PubMatic's stock from Buy to Neutral, slashing its price target to $9.00 from $17.00. This downgrade reflected a more cautious outlook on the stock, influenced by the challenges with a major DSP partner that impacted PubMatic’s available inventory and pressured ad spending. - Scotiabank's Price Target Reduction: Scotiabank also lowered its price target to $10.00 from $15.00, further indicating a more conservative stance on the stock. This reduction in price targets by both analysts suggests a broader consensus among experts that the stock's upside potential was limited.4. Investor Considerations: - Strategic Implications: The significant intraday plunge and subsequent stock weakness present a challenging environment for investors. Those considering PUBM should carefully weigh the risks associated with the company's current earnings trajectory and market sentiment. - Long-Term Outlook: While the short-term volatility is stark, a longer-term perspective may reveal opportunities. Investors should assess PubMatic's strategic initiatives, such as AI-driven platform enhancements and CTV revenue growth, to gauge their potential for mitigating current challenges and driving future performance.In conclusion, PubMatic's stock experienced a severe downturn following its Q2 2025 earnings report, which highlighted a significant net loss despite revenue growth. This event led to a series of downgrades by analysts, contributing to a prolonged period of stock weakness. Investors must carefully evaluate the company's strategic direction and the potential for recovery against the backdrop of current market uncertainties.

Act Now: PUBM at a Pivotal Crossroads
Pubmatic’s 26% drop has created a high-risk, high-reward scenario. While the stock’s oversold RSI and bearish MACD suggest a near-term bounce, the 52W low of $7.01 remains a critical support level. The sector leader, The Trade Desk (TTD, +1.65%), indicates broader ad-tech resilience, but Pubmatic’s DSP dependency could prolong volatility. Traders should monitor the 7.5-strike options and watch for a breakdown below $7.01. If the stock holds, the 7.5-strike puts offer a leveraged short-side play; if it rallies, the 10-strike October calls provide a longer-term hedge. Watch for $7.01 support or TTD’s performance for sector clues.