PubMatic is dialing back its expectations for the rest of 2024, and investors are taking note.
The SSP revised its full-year revenue outlook down by $10 million in its earnings report on Thursday. Its stock price immediately dropped 35% in after-hours trading, before settling at about 30% down when the market opened this morning.
The $10 million revision was due, in part, to a projected $5 million dip in revenue from a major DSP partner switching to first-price auctions in May, said PubMatic CFO Steve Pantelick. Projected softness through the rest of the year in a few key verticals, including tech, automotive, travel and entertainment, is also expected to have a $5 million impact on PubMatic’s business.
The company netted $67 million in revenue for the quarter, up 6% YOY. That growth rated lagged behind at least one SSP competitor, Magnite, which reported 9% YOY growth for the quarter and $147 million in revenue.
Don’t go chasing waterfalls
PubMatic would have seen 10% growth for the quarter – comparable to Magnite – if not for the impact of the aforementioned DSP’s switch to first-price auctions, according to Pantelick.
Nearly all of the impressions served on PubMatic’s platform are now sold through first-price auctions, rather than waterfall auctions, he added. The DSP in question – which PubMatic did not name – was the last of its major DSP partners to make the switch, and it was slow to adapt to the new bidding approach, he said.
As a result, PubMatic saw a revenue shortfall of about $2 million in Q2, primarily in desktop display, Pantelick said. Overall desktop display revenue grew just 2% for the quarter.
PubMatic expects to lose an additional $3 million this year from this DSP’s shift to first-price auctions, Pantelick added. But it is optimistic that software optimizations planned for Q3 should stabilize buying activity on that DSP by early next year.
The big three
While the ecosystem shifting to first-price auctions has been a drag on PubMatic’s desktop display business, it is seeing returns from the mobile app ecosystem adopting this approach.
“All of the major mediation layers, including AppLovin, Google Ad Mob and Unity, are moving away from waterfall auctions to embrace unified auction technology,” said PubMatic CEO Rajeev Goel.
He added that the OpenWrap SDK, which PubMatic released back in 2020, has been well positioned to take advantage of the shift to mobile first-price auctions through header bidding optimizations for app publishers. OpenWrap SDK’s revenue doubled compared to Q2 last year.
The optimism around mobile in-app reflected PubMatic’s efforts to diversify into three major revenue streams, with in-app joining video and SPO as its key growth drivers.
The SSP reported that revenue from mobile in-app display and video ads grew more than 20% year-over-year in Q2. It was the third consecutive quarter that PubMatic’s mobile in-app revenue grew by more than 20%.
“We see mobile app as a key differentiator for PubMatic amongst our peer set,” Goel said. Unlike cookie-focused mobile web, mobile apps use different identify signals – a good place to diversify if you thought Google Chrome really was going to remove cookies (just kidding).
Goel credited PubMatic’s SDK integrations with publisher apps for driving the in-app channel over the past three quarters. Those integrations provide “increased performance, along with greater control of the ad experience for the end user,” he said.
CTV impressions
PubMatic also saw strong growth in omnichannel video, which it has been hyping as a strength for several quarters now. Video revenue across desktop web, mobile and CTV grew 19% YOY and accounted for 34% of PubMatic’s total revenue for the quarter.
The lion’s share of PubMatic’s business has now shifted to mobile, online video and CTV. Mobile display and omnichannel video combined represented 78% of the revenue PubMatic pulled in Q2.
The SSP’s SPO products – such as its Activate direct-buying solution for omnichannel video – also remain a growing focus of its business. SPO deals comprised more than 50% of the total activity on PubMatic’s platform in Q2, up from 40% this time last year.
And PubMatic’s SPO offerings led to key wins in the quarter, Goel said, including new partnerships with CTV platforms Roku and Disney+ Hotstar (the Indian subsidiary of Disney).
Speaking of CTV, Goel pointed to increased programmatic adoption by the biggest names in streaming, including Netflix, Disney, NBCU and Roku, as a source of future growth.
Increased programmatic adoption by streamers helped push a 12% YOY increase in monetized impressions sold through PubMatic’s SSP, with CTV impressions doubling.
Overall impressions served through PubMatic’s platform grew 24% YOY to 61 trillion. This was its fourth consecutive quarter of double-digit growth in impressions.
One does wonder how much more this number could grow, considering PubMatic is already claiming more than 7,000 impressions for each of the 8 billion people on Earth. But the SSP is banking on increasing volume even further.
“The majority of our business is volume-driven,” Pantelick said in response to an investor question. “Through the rest of the year, I expect that we’re going to see double-digit growth in revenues and double-digit growth in monetized impressions.”
