PubMatic reported strong revenue growth and margin expansion in Q4 2024
From Nasdaq: 2025-02-28 01:15:15
PubMatic reported solid revenue growth and margin expansion in Q4 2024, with revenue more than doubling from the previous year, driven by strength in CTV and new products. The company achieved expanded adjusted EBITDA margins of 32% and returned to a Rule of 40 company. Despite a headwind in desktop display related to a single DSP partner, revenue excluding this impact was up 16% year over year in Q4. PubMatic’s CTV business represented 20% of Q4 revenue, doubling its share from the prior year. The company serves four key customer segments and continues to invest in product innovation to drive growth. PubMatic has expanded its end customer base and doubled its total addressable market to over $120 billion since its IPO four years ago. The focus on generative AI has led to innovation in internal functions, customer-facing products, and new capabilities. The company’s Connected TV and streaming segment saw significant growth, with revenue from omnichannel video reaching over 40% in Q4. The CTV marketplace was launched to aggregate inventory and offer specific categories to buyers. PubMatic’s mobile app business grew 16% year over year, driven by the OpenWrap SDK. Over half of the platform’s activity is transacted via supply path optimization, with a strong partnership with IPG Mediabrands driving growth.
The partnership with TCL integrates viewership data and premium inventory for targeted advertising. PubMatic’s mobile app business is growing rapidly, with over 900 app publishers on the platform. The company’s partnership with IPG Mediabrands has seen significant growth, with Activate fueling growth across the platform. Activate has led to cost savings for media buyers and increased working media dollars for publishers. 2024 saw a breakout year for Activate customers, with retail and commerce media becoming pivotal components of the advertising landscape. Leading commerce media networks like Instacart, Dollar General, and Western Union are making their data and audiences available on PubMatic’s platform. PubMatic has seen success in their off-site commerce media business due to investments in their Connect platform, which allows for more effective B2B marketing campaigns on the open Internet. The growth of Connect diversifies revenues and shifts buying activity to higher-ROI, data-driven impressions, reducing the need for third-party cookies.
In 2024, PubMatic increased engineering productivity by over 15% by applying generative AI technology. They released PubMatic Assistant, a Gen AI-powered reporting tool for publishers, and achieved 16% year-over-year revenue growth in the fourth quarter. CTV revenue doubled and represented 20% of total revenue, showing strong growth and profitability. The company’s multiyear strategy has proven successful, delivering significant profit and cash flow growth. Despite lower-than-expected total revenues in Q4, CTV saw strong growth, offsetting weak holiday spending by a large DSP buyer. Excluding this buyer and political advertising, the underlying business grew 16%. The company aggressively managed costs, resulting in a 3% increase in cost of revenue in Q4. Operating expenses for the quarter and full year were $45.8 million and $186.3 million, respectively. GAAP net income for Q4 was $13.9 million. In 2024, the company generated $73.4 million in net cash from operating activities.
Looking ahead to 2025, the company is confident in its growth strategies and well-positioned to execute them. Despite a near-term headwind from the DSP buyer, the company is targeting 15%-plus growth in its underlying business this year. The company plans to leverage investments in sales and technology, as well as expand its usage of Gen AI to drive efficiency and growth. The company’s financial outlook remains positive, with continued growth in the underlying business and a conservative approach to the large DSP buyer’s impact on revenues. In the first quarter, revenue for the company is expected to be between $61 million to $63 million, with adjusted EBITDA projected to be $5 million to $7 million. The company anticipates double-digit percentage growth in their underlying business. Throughout 2025, revenue growth is expected to be slightly down year over year in the first half but increase in the second half. The company is focused on driving operational efficiencies and productivity improvements to support growth. The impact on revenue is primarily from one large DSP buyer, affecting desktop display formats. Monetized impressions for CTV have doubled, showing growth in core areas. PubMatic is focusing on building relationships with buyers and shifting towards faster-growing areas like CTV and mobile apps. They are becoming less dependent on display advertising, with desktop display now accounting for 20% of total revenues. The industry is moving towards sell-side targeting due to pressure on cookies and a shift towards first-party data. PubMatic has diversified its revenue streams and invested in Connect capabilities to capitalize on this shift. They are seeing success in CTV, working with 80% of the Top 30 streamers, including Roku, Disney+, and TCL. Activate, PubMatic’s digital advertising platform, saw six times growth year-over-year, with every holdco now buying on the platform. The platform simplifies the digital advertising supply chain, driving performance and efficiency. Every dollar spent on Activate flows into PubMatic’s SSP, leading to incremental spend for publishers integrated into PubMatic. On the revenue side, PubMatic anticipates ongoing enhancements through AI tools, with potential for 5-15% improvement in efficiency and revenue annually. Regarding the DSP issue, all DSPs are now on first bid, eliminating the risk for other DSPs. Investments in buy-side products, including R&D and sales, are expected to play out positively in the next 12 to 18 months. The DSP change to first-price auctions marks a final transition in the market. Investments in sales teams for SPO, Activate, and commerce media will continue in 2025. Gen AI solutions aim to boost team efficiency. CTV ecosystem evolving towards more programmatic transactions. Yield management crucial for publishers. Adjusted EBITDA beats expectations in a lean and efficient business model. Expect headline growth to converge to 50% core business growth in the second half of 2025 once DSP buyer impact is lapped. The company expects high single-digit growth in the second half of 2025 compared to the same period in 2024, attributing a significant portion of the growth to political spending on CTV. New partnerships are expected to add incrementality to revenue growth, particularly in the CTV business. Despite the strong performance in CTV, excluding political spend, revenue doubled year over year. Political spending represented about 6% of revenue in 2024, with a third of total CTV revenue coming from political spend. The company anticipates continued growth in the CTV business in the high teens in 2025 and beyond, driven by trends like multiple SSPs and open Internet advertising. Competitive dynamics in the industry are evolving, with blurred lines between DSPs and SSPs, but the company remains focused on making the digital advertising supply chain efficient and transparent. PubMatic reported strong financial results for Q3 and Q4 of 2024, with revenue growth rates doubling over the previous year. The company is focusing on deleveraging from cyclical display business and shifting towards key growth areas like CTV and mobile app. They are targeting accelerated growth of 15% or more in 2025. The transition will lead to a faster-growing business and realignment of resources. PubMatic will be attending upcoming technology conferences to showcase their progress and opportunities for market share growth.
Read more at Nasdaq: PubMatic (PUBM) Q4 2024 Earnings Call Transcript