1 stock to buy that crushed the estimates

PubMatic (NASDAQ: PUBM) reported strong and unexpected earnings on Nov. 9, the company’s shares rose throughout this week. By the end of the week, PubMatic shares jumped 47%, mostly after its impressive earnings.

This quarter has been very special. PubMatic has shown investors that it has the potential to dominate the sales market and is able to innovate and adapt to the market. The company is currently the most innovative company in its market, which is just one of the reasons why I think this growth stock is worth buying today.

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Drill through adtech on the sales side

PubMatic helps publishers find advertisers looking to buy ad space through a complex artificial intelligence-based auction system. This system helps publishers get the best deal for their ad space while helping advertisers effectively reach their target audience. The company has started adopting the use of cookie-less identifiers to combat increasing cookie regulations, an innovation that has baffled some of its competitors. Its cookie-free sources are always accurate and provide valuable information for targeted advertising while maintaining consumer privacy. This, among others, has allowed PubMatic to attract major publishers like Zillow and Unity as customers.

Although analysts expect the business to be affected by AppleiOS cookie policy, PubMatic had an astonishing third quarter (period ending September 30). Revenue increased 54% year-over-year to $ 58 million, and net profit increased 117% to $ 13.5 million. PubMatic has generated over $ 30 million in free cash flow so far this year, and the company has no long-term debt. The company also increased its net retention rate by 47 percentage points to 157%, primarily through customer adoption of new products like Identity Hub and Audience Encore. While PubMatic’s overall performance was exceptional, two other factors in its quarter stole the show.

The main stars

First, the company has proven that it does not use cookies as much as its competitors. Apple and other tech giants are committed to getting rid of cookies, a valuable data source for advertisers and adtechs like PubMatic. This could hurt PubMatic’s value to its publishers, but as competitors grappled with these challenges, PubMatic seemed unaffected. Approximately 66% of PubMatic’s revenue in the third quarter came from cookie-free identifiers, indicating that this major change in the cookie industry will have minimal impact on PubMatic.

Second, the company increased its connected television (CTV) ad spend by 600%, and it reached 154 CTV publishers from 114 in the quarter of the previous year. CTV should be one of the main ways to earn in the future, as it will not be affected by cookie regulations and is much more valuable to advertisers. Advertisers are willing to spend twice as much on CTV ads because of the value they bring. With such potential already showing strong growth, this shows an area contributing to a long growth path for the future of PubMatic.

What’s next for PubMatic?

PubMatic faces intense competition from Magnite (NASDAQ: MGNI), but I think PubMatic is structurally better than Magnite. While Magnite is the market leader in this space, PubMatic has many competitive advantages over Magnite, including its complex use of AI, the success of cookie-free alternatives, and organic rather than inorganic growth.

All of PubMatic’s growth is organic – meaning it has been without acquisitions – but the same can’t be said for Magnite. While PubMatic saw 54% organic revenue growth year-over-year in the third quarter, Magnite only saw 26% growth after revenues from recently acquired companies were added to revenues. of the third quarter of 2020. This gives a better comparison of the consolidated activity that the company now has under its name. Magnite’s actual revenue grew triple digits, but that was through acquisitions and acquisitions weren’t factored into last year’s comparison. The company does not disclose growth from its own business. However, one could assume that its core business is suffering severely and that most of Magnite’s growth comes solely from its acquisitions, as it does not report on its organic growth.

All of this innovation, growth, profitability and dominance comes at a relatively inexpensive price. PubMatic trades at 10 times sales and 43 times profit. While this number is much higher than just a few months ago, when it was trading at almost 6 times sales and 30 times profit, these numbers are much better than its competitors. Magnite, for example, trades at 1,100 times its profits as a market leader.

With that in mind, aside from the fact that PubMatic has had major success with AI and cookie-less alternatives for data, I think PubMatic is much more powerful than Magnite. Even though Magnite is currently the market leader, I could see PubMatic overtake it in a few years. If PubMatic can become a leader in a market where advertisers are expected to spend over $ 520 billion on ads by 2024, it looks like there is still a lot of growth for PubMatic.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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