Pubmatic (PUBM) has been a name that has been floating around for a few weeks now, usually in the context of its high short interest. As we dug into the name further, we were pleasantly surprised to find out that this company is not dog-shit, is not failing, nor is it in a dying industry (as most of the other short interest plays that will remain unnamed), but a thriving company in an accelerating industry. This post will guide you through how we stumbled on the name, the company and its financials, the industry, the short-interest, and the plan. There are several angles of attack here, enough for everyone to get their grubby little hands dirty: traders, investors and gamblers. A summary:
- Clean financials, with earnings beat and raised guidance
- Undervalued compared to peers
- Secular tailwinds as digital advertising expands
- Dual class share structure which disincentivize insider selling
- High short interest (anywhere from 20%-50% as of 6/24)
- High institutional ownership (74%)
- Small float with tight liquidity
- Bottoming chart pattern with reversal
- Options chain initiation on 6/25 – with more strikes to be added imminently
In short, Pubmatic is an advertising technology company. For most of human history, business owners have been using ads to sell their products, inform their customers of a value proposition, or build brands. With the advent of the internet, “adtech” companies like Google have grown rich and powerful by allowing advertisers to communicate with any type of customer they want, virtually instantaneously, as much as they want. No other form of advertising offers these features and as such, the digital advertising market has become extremely complex with hundreds of billions of dollars on the line every year.
Pubmatic operates and competes in this space, specifically programmatic advertising. Before programmatic, digital ads were bought and sold by teams of people on either side of the equation, which was slow and cumbersome. Now there are scores of companies that have built software and infrastructure that allows digital ad space to be traded programmatically.
Since Pubmatic is a programmatic ad company – it is benefiting from these two tailwinds: more ads are becoming digital and more digital ads are becoming programmatic.
Programmatic channels primarily have two sides to them: the buy side and the sell side. At a basic level, publishers generate revenue by selling digital ad space on their content, and advertisers/marketing agencies will purchase this ad space to place an ad in front of a potential customer.
Pubmatic is an SSP or supply side platform. Publishers will integrate and configure Pubmatic’s software to allow for the transactions to take place. Publishers want the best outcomes possible for their ad slots, so more often than not, they’ll integrate with multiple SSPs in an effort to increase their overall yield.
I can’t stress this enough: the programmatic ad market is so complex, I would be willing to bet that a single person couldn’t wrap their head around the whole thing. It is mountainous in size. Trillions and trillions of programmatic ads are served up across advertising verticals, across global markets, and across billions of devices every month. Any sizable publisher that wants to efficiently sell their inventory at scale must work with an SSP and compete in the broader programmatic ad market.
Needless to say, most digital channels continued to grow as people spent more time inside and on their devices. Pubmatic’s revenue continued to grow YoY as overall advertising spend took a big hit (due to COVID). The most exciting part about this is that global ad spend is projected to return to its normal growth pattern