What Happened:

Shares of programmatic advertising platform Pubmatic (NASDAQ: PUBM) jumped 14.1% in the morning session after the company reported third-quarter results that exceeded Wall Street's expectations for revenue and EPS. In addition, revenue and adjusted EBITDA guidance for the next quarter blew past analysts' expectations. The strong topline result was attributed to an increase in monetized impressions across both video and display formats. The company noted that Q4 has started out on solid footing, with October revenues growing both sequentially and year-over-year in the single-digit percentage range driven by increased monetized impressions. On the other hand, its net revenue retention fell, and its gross margin decreased. While not a perfect quarter, we still think this was still a strong one that should satisfy most shareholders.

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What is the market telling us:

PubMatic's shares are quite volatile and over the last year have had 17 moves greater than 5%. But moves this big are very rare even for PubMatic and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 13.8% on the news that the company reported second quarter results in which it pulled full year guidance, only providing guidance for the next quarter. Said differently, the company provided full year guidance last quarter for adjusted EBITDA and free cash flow. This quarter, the company seemed to lack the visibility and/or confidence to reaffirm or update that guidance, which is never a good sign. 

Management stated that "macroeconomic conditions continue to be challenging and advertisers remain cautious, particularly with respect to brand advertising. Our outlook is based on the latest data that reflect positive volume trends, industry-wide pricing headwinds and the short term impact from the redistribution of ad spend caused by a recent DSP bankruptcy." To pour salt on the wounds, revenue and adjusted EBITDA guidance for the next quarter was also below Wall Street's expectations. In addition, net revenue retention rate continued to move lower. As for some positives, revenue and earnings per share came in ahead of expectations. Within revenue, monetized impressions increased year-over-year but CPMs (the price Pubmatic charges) were lower due to the highlighted macro headwinds. Overall, it was a weaker quarter for the company, with the removal of full year guidance and macro narrative likely weighing heavily on investors' minds.

PubMatic is up 11.5% since the beginning of the year, but at $14.70 per share it is still trading 26.5% below its 52-week high of $19.99 from July 2023. Investors who bought $1,000 worth of PubMatic's shares at the IPO in December 2020 would now be looking at an investment worth $498.81.

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