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PubMatic's Q2 2024 Earnings: Growth Challenges and Adjusted Guidance

AInvestThursday, Aug 8, 2024 11:00 pm ET
2min read

In its Q2 CY2024 earnings report, programmatic advertising platform PubMatic (NASDAQ: PUBM) posted results that fell short of analysts' expectations, raising concerns about its growth trajectory in a competitive digital advertising market.

Revenue increased by 6.2% year on year to $67.27 million, which was below the anticipated $70.11 million. Despite this revenue miss, PubMatic reported a non-GAAP profit of $0.17 per share, beating the consensus estimate of $0.13 per share, marking a significant improvement from its loss of $0.11 per share in the same quarter last year.

Looking ahead, PubMatic's guidance for the next quarter projected revenue of $66 million, which was 4.4% below analyst expectations. The company also adjusted its full-year revenue guidance downward to $290 million at the midpoint, a 3.3% reduction from previous estimates, reflecting ongoing challenges in the digital advertising landscape.

PubMatic's revenue for the quarter came in at $67.27 million, missing analyst estimates by 4.1%. While the company managed to post a better-than-expected non-GAAP EPS of $0.17, its revenue guidance for Q3 CY2024, set at $66 million, was below market expectations.

The company experienced a modest improvement in its gross margin, which increased to 62.6% from 60.4% in the same quarter last year.

However, free cash flow dropped significantly by 57.5% from the previous quarter, amounting to $6.91 million. On a positive note, PubMatic's net revenue retention rate improved to 108%, indicating that existing customers are spending more on the platform's services.

Rajeev Goel, co-founder and CEO of PubMatic, highlighted some of the company's successes in Q2, particularly in areas like omnichannel video, which includes connected TV (CTV), and mobile app advertising. Both segments saw year-over-year revenue growth of 19% and over 20%, respectively.

Additionally, the company noted an increase in monetized impressions by 12% compared to the previous year, with supply path optimization activity surpassing 50% for the first time.

PubMatic's annualized revenue growth of 14.6% over the last three years has been lackluster, and the 6.2% year-on-year revenue increase this quarter did little to excite investors.

However, the slight quarter-on-quarter revenue improvement suggests some recovery following the sharp decline in Q1 CY2024.

Next quarter's guidance indicates expected revenue growth of 3.6% year on year, which, although modest, represents an improvement over the previous year's decline. However, the company’s lowered full-year guidance points to potential headwinds in sustaining growth momentum.

One of the strengths of PubMatic’s business model is its ability to grow revenue from existing customers, as evidenced by its net revenue retention rate of 108% in Q2.

This suggests that PubMatic's clients continue to find value in its offerings, spending more over time.

However, despite the positive retention rates, the company’s overall revenue growth remains a concern. While PubMatic’s customers are increasing their spend, the slower-than-expected growth in new customer acquisition or additional revenue streams may be a drag on future performance.

PubMatic's Q2 CY2024 results highlighted a mixed performance. While the company showed resilience with a beat on EPS and improvements in customer retention, the revenue miss and lowered full-year guidance are troubling signs.

The digital advertising space remains competitive, and PubMatic will need to address its growth challenges to reassure investors.

The immediate market reaction was negative, with the stock dropping 24% to $14.90 following the earnings report. Investors will be closely watching how PubMatic navigates the rest of the year, particularly in managing costs and driving growth in a challenging environment.

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