A small, freshly public and relatively unknown ad tech company by the name of PubMatic (NASAQ:PUBM) soared on Wednesday after the company reported stellar fourth-quarter number which blew past estimates and impressed investors. PUBM stock ripped higher by more than 30%, continuing its run Thursday morning.
It was a huge rally in an under-the-radar tech stock that no one saw coming
Well, you could’ve seen it coming … had you been subscribed to my financial newsletter, The Daily 10X Stock Report.
In that newsletter, I highlighted weeks prior to this enormous rally in PUBM stock that PubMatic was a hidden gem with a breakthrough sell-side ad-tech platform that was primed for robust adoption in the coming years.
To read more about that newsletter — and how to get in early on the biggest breakout stocks in the market — click here.
But back to PUBM stock, this big rally is really just the beginning. PubMatic is a very exciting, young company with an innovative, disruptive technology platform that will become a “must-have” tool for publishers, app developers, and anyone with digital ad inventory.
PUBM stock could follow in those footsteps.
Here’s a deeper look.
PUBM Stock: The Data Driven Advertising Revolution
To understand the bull thesis on PUBM stock, we have to first understand the data-driven advertising revolution.
For years — decades, even — advertisers have been married to a 1950s-esque model wherein marketing campaigns were driven by humans, transacted by humans, and determined by humans.
That’s a “dumb” way of doing things. Humans are slow. They’re error-prone. They’re susceptible to emotion. And, as we can all attest to, they often don’t make the best or most rational decisions.
Over the past few years, a “smarter” way to advertise has emerged, wherein the entire process is driven by data and performed by high-speed algorithms.
This new way of advertising — dubbed data-driven advertising, or programmatic advertising — is the future. It’s smarter. It’s better. And it’s faster. Ultimately, it gives marketers a far better chance of getting their ads in front of the right audience at the right time.
Data-driven advertising really gained momentum during the Covid-19 pandemic. That’s because marketers had to do a lot with a little. Ad budgets were cut. They needed to squeeze all the value out of those downsized budgets that they could. The best way to do that? Use data. Use algorithms.
So they turned to data-driven advertising.
This shift toward superior advertising is just getting started.
Global ad spending is marching towards $1 trillion annually. Most of that trillion-dollar pie will be spent in the digital channel. Most of the digital ad dollars will be transacted programmatically. Thus, when all is said and done, the data-driven advertising market will measure in the $500-plus billion range. Programmatic ad spend today is less than $100 billion.
Thus, the runway for growth here is enormous.
The Sell-Side Version of The Trade Desk
Also to understand the bull thesis on PUBM stock, we need to understand the dynamics of the advertising market.
That market broadly has two sides.
There’s the demand-side (or buy-side), which represents the brands and marketing agencies that buy advertising inventory to market their products and services.
Then there’s the supply-side (or sell-side), which represents the content publishers and app developers that sell that ad inventory to monetize their content and platforms.
The Trade Desk provides data-driven ad tools on the buy-side of the advertising equation. That is, the company leverages its data-driven algorithms and tools to help brands and agencies run efficient marketing campaigns that maximize the value of every ad dollar they spend.
PubMatic does nearly the same thing, on the sell-side of the market.
The company has created a sell-side ad tech platform that leverages data-driven algorithms and tools to help content publishers and app developers maximize the value of their ad inventory.
In essence, PubMatic combines ad bid data from demand-side platforms, with consumer demographic and interest data from content publishers, to help ad inventory owners put the right ads in front of the right consumers, so as to increase advertiser return-on-investment (ROI) and publisher revenue.
It is The Trade Desk for ad sellers.
The Data Advantage
As is true with The Trade Desk, the value of the PubMatic business model lies in the company’s data.
The Trade Desk was able to turn into a $40 billion titan of the ad industry because it had more ad data than anyone else on the buy-side of this industry, which led to the platform being able to deploy the best data-driven algorithms, which ran the best ad campaigns for ad buyers.
PubMatic runs on the same data-driven growth flywheel.
The company was a first-mover in the sell-side programmatic ad tech game. As such, the company has been able to rack up partnerships with some of the biggest ad sellers in the world, including News Corp (NASDAQ:NWSA), Verizon (NYSE:VZ), AMC (NYSE:AMC), and Electronic Arts (NASDAQ:EA).
This matters only because it means PubMatic has amassed the largest and most valuable data-set in the sell-side programmatic ad tech world. The company processes 1 trillion ad bids per day, is responsible for 134 billion daily ad impressions, and produces 1.65 petabytes of data every single day.
Those numbers are unprecedented in the sell-side ad tech space.
And as such – because algorithms are informed by data – PubMatic’s programmatic ad algorithms are also unprecedented in terms of their ability to maximize the value of publisher ad inventory.
That’s a huge advantage which is very bullish for PUBM stock.
Other Big Advantages
PubMatic’s data advantage is enormous. But it’s not the only edge that makes PUBM stock a long-term winner…
PubMatic’s approach to providing sell-side ad tech solutions is unique and potentially game-changing. Traditionally, sell-side platforms have focused exclusively on helping ad sellers in a “closed box” loop.
But PubMatic, seeing the value of transparency and coordination in the advertising process, has opened up this “closed box” and has integrated its platform with leading buy-side players, like The Trade Desk.
This integration should only bolster the effectiveness of PubMatic’s solutions, since it gets both the buy- and sell-side parts of the ad equation to work together to produce Pareto optimal outcomes.
Concurrently, PubMatic has a reputation for “innovation.” Two of the five customers quoted in PubMatic’s S-1 cite the company’s “innovation” as a reason why they chose PubMatic as their sell-side ad tech solutions provider. This mostly stems from the company’s leadership in header bidding, which PubMatic basically pioneered.
But, more importantly, this innovation DNA bodes well for future product developments and business expansions.
Robust Business Momentum
PubMatic has all the fundamental ingredients to be a long-term winner. This is, after all, a leading player in a secular growth space, with a huge addressable market and durable competitive advantages.
But is the company executing on all this potential?
Absolutely. That’s why PUBM stock just popped 30% in a day.
The company reported fourth quarter numbers which were absolutely stellar. The number of publishers and app developers on the platform rose 44% year-over-year. Dollar based net expansion rates were 122%. Revenues jumped 64%. Gross margins expanded almost 700 basis points. Adjusted EBITDA dollars basically tripled year-over-year.
These sorts of hypergrowth numbers will become the norm at PubMatic over the next few years.
During that stretch, PUBM stock will keep pushing higher.
Bottom Line on PUBM Stock
PubMatic stock is one of my favorite long-term investments, given its small market cap, huge potential, breakthrough technology platform, and robust business momentum.
But it’s not my single favorite growth stock to buy today.
Instead, the best growth stock to buy today is a company that reminds me of a young Amazon (NASDAQ:AMZN). Indeed, I think buying this stock today could be like buying AMZN stock back in 1997 — before it soared thousands of percent.
Which stock am I talking about?
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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