PubMatic (PUBM) Slides After Catching An Analyst Downgrade Today
2:38 pm Tuesday, May 31st, 2022
PubMatic (PUBM) is sliding today after catching a downgrade from Jefferies to “Hold” from “Buy”; the firm has also slashed the stock’s price target by about 18%. PUBM is a supply-side platform (SSP) provider for publishers who wish to sell ad space. As an SSP, PUBM differs from other advertising technology companies, such as The Trade Desk (TTD), which competes in the demand-side platform (DSP) sphere.
Last week, a broad sell-off in advertising technology companies kicked off after Snap (SNAP) noted that it is likely to report Q2 revs and adjusted EBITDA below the low-end of its prior outlook. SNAP attributed its weak guidance to macroeconomic factors.
Ad spending has indeed been curbed in recent quarters, especially for organizations selling physical goods, as supply chains have disrupted inventories. However, comments by many significant players in their respective industries provide encouraging signals suggesting that ad demand has remained solid or will recover nicely in coming quarters despite macro pressures.
It is also encouraging to see that digital ads have become more popular since the start of the pandemic, since this business is PUBM’s bread and butter. Online travel agency Booking Holdings (BKNG) has also noted a shift from offline ads to digital ads.
Another slice of good news was the more than 30% growth that Walmart’s (WMT) global advertising business posted in AprQ, suggesting a recovery of demand from advertisers.
Advertising should come back in full force as supply lines improve. For example, due to supply constraints, advertising spending at Kellogg’s (K) came in much lower than usual in Q1. However, the company expects ad investments to be restored gradually throughout the year, in-line with its recovering supply.
Overall, PUBM’s analyst downgrade today has kept the stock suppressed; it is now down nearly 40% on the year. With a forward P/E ratio above 30x, a sizable premium to main rival Magnite (MGNI) at 12x, PUBM may find difficultly getting its shares back to 52-week highs of around $44. However, it is promising that ad spending is either recovering or holding relatively stable despite macroeconomic challenges. It should also be noted that at PUBM, the first half of each year is usually accompanied by softness in the advertising business, while spending tends to accelerate beginning in Q3 and Q4.
