Executive Summary / Key Takeaways

• PubMatic is strategically positioned as an independent SSP leveraging its owned infrastructure and advanced technology, including recent GenAI innovations, to capitalize on the accelerating shift to programmatic advertising, particularly in high-growth areas like CTV, mobile app, and commerce media.
• Despite a near-term headwind from a large DSP buyer's bidding changes and prior-year political spend, PubMatic's underlying business (excluding these factors) demonstrated strong acceleration, growing 21% year-over-year in Q1 2025, highlighting momentum in secular growth drivers.
• Investments in differentiated products like Activate (SPO), Connect (Curation), and Convert (Commerce Media) are driving significant customer adoption, diversifying revenue streams, and enhancing platform value by enabling sell-side targeting and increasing efficiency for buyers and publishers.
• The company maintains a healthy balance sheet with $144.1 million in cash and marketable securities and no debt, supporting strategic investments and an expanded share repurchase program, providing financial flexibility to pursue market share gains during periods of uncertainty.
• Management's outlook anticipates growing through the temporary headwinds, projecting 15%+ growth in the underlying business for the second half of 2025 and beyond, underpinned by continued operational efficiencies, targeted investments, and the increasing adoption of its advanced platform solutions.

The Foundation of Programmatic Power

PubMatic, Inc. operates at the heart of the digital advertising ecosystem, providing a specialized cloud infrastructure platform that enables real-time programmatic advertising transactions. Founded in 2006, the company established its core identity as an independent sell-side platform (SSP), focused on empowering digital content creators (publishers) to maximize the monetization of their advertising inventory across the open internet. This foundational strategy was built upon owning and operating its software and hardware infrastructure globally, a differentiated approach management notes provides significant infrastructure efficiencies compared to public cloud alternatives. This infrastructure-driven model allows for the efficient processing and utilization of vast amounts of data in real time, a critical capability in the milliseconds-fast world of programmatic auctions.

The company's journey from its founding through its November 2020 IPO has been marked by a consistent focus on building purpose-built technology and expanding its reach. Since going public, PubMatic has significantly broadened its strategic scope, targeting key secular growth areas within the digital advertising market. This expansion has more than doubled its total addressable market to over $120 billion, encompassing areas like Supply Path Optimization (SPO), Connected TV (CTV), mobile app, commerce media, audience targeting, and performance marketing. This strategic evolution has transformed PubMatic into a platform serving not just publishers, but also media buyers, commerce media networks, and data curators, creating a reinforcing flywheel effect where growth and engagement in one segment enhance the value proposition for others.

At the core of PubMatic's competitive positioning is its technological differentiation. The company's specialized infrastructure and multi-decade focus on machine learning, now significantly augmented by generative AI, provide tangible benefits. This technology enables the processing of approximately 842 billion ad impressions daily, each in a fraction of a second. Quantifiably, the company has demonstrated impressive operational efficiency, increasing the number of impressions processed by 60% over the last two years on a trailing 12-month basis, while managing GAAP cost of revenue to an increase of only 16% over the same period. This translates to a significant reduction in the cost of revenue per million impressions processed, which decreased by approximately 22% in Q1 2025 compared to the prior year period.

Recent investments in generative AI are further enhancing this technological edge. Within the engineering organization, GenAI is allowing PubMatic to accelerate innovation and improve productivity without necessarily expanding headcount. On the customer-facing side, the company recently unveiled a GenAI-powered end-to-end platform for buyers. This platform aims to simplify and optimize the media buying process, from inventory discovery and forecasting to curation and activation. A key feature allows buyers to use natural language to describe desired inventory, enabling AI models to instantly create optimized deal packages, eliminating manual workflows and improving targeting precision. Buyers can then activate these deals directly through PubMatic's Activate solution for enhanced transparency and efficiency or push them to their DSP of choice. These technological advancements contribute directly to PubMatic's competitive moat by improving the performance and efficiency of its platform for both publishers and buyers, fostering sticky customer relationships and driving operational leverage.

Navigating the Competitive Currents

The digital advertising landscape is intensely competitive, populated by large, integrated players and specialized technology providers. PubMatic competes directly with other SSPs like Magnite (MGNI) and the supply-side components of larger platforms, most notably Google Ad Manager (part of Alphabet (GOOGL)). It also competes for ad spend against demand-side platforms (DSPs) like The Trade Desk (TTD) and the integrated ecosystems of walled gardens like Meta Platforms (META).

PubMatic positions itself as a leading independent SSP, emphasizing transparency, direct relationships, and a publisher-first approach, underpinned by its owned infrastructure. Compared to Google, which holds a dominant market share (estimated around 60% in ad tech), PubMatic offers independence and a focus on the open internet. The recent Google AdTech antitrust verdict is seen by PubMatic's management as potentially creating a more level playing field, driving publishers and buyers towards independent solutions and presenting a significant opportunity for market share gains. Management estimates that every 1% share gain could equate to $50 million to $75 million of net revenue.

Against other SSPs like Magnite, PubMatic highlights its differentiated technology stack, including its scaled SDK footprint for mobile app and its specific solutions for CTV and commerce media. While Magnite has also focused on CTV through acquisitions, PubMatic's organic innovation and infrastructure efficiency are key differentiators. PubMatic's OpenWrap SDK, for instance, is a leading mobile mediation solution driving strong growth in that channel.

When compared to DSPs like The Trade Desk, PubMatic's core focus remains on the sell side, although its Activate product directly engages with buyers, enabling them to consolidate spend and gain efficiency via SPO. While TTD is a dominant force on the buy side with strong AI-driven optimization, PubMatic's sell-side targeting solutions (Connect, Convert) and its new AI buyer platform aim to bring similar data-driven performance and efficiency to the supply side, offering a different path to reach audiences and optimize outcomes. PubMatic's focus on sell-side curation is gaining traction as the industry shifts away from third-party cookies and towards first-party data activation.

Financially, PubMatic's TTM gross profit margin stands at 64.91%, reflecting the efficiency of its infrastructure. However, its TTM operating profit margin is -0.85% and net profit margin is 1.90%, indicating significant ongoing investments in technology and sales compared to larger, more mature players like Google (high operating and net margins) or even TTD (higher net margins). Magnite's margins are more comparable but can be impacted by integration costs from acquisitions. PubMatic's strategy is to leverage its operational efficiencies and targeted investments to drive higher growth in secular areas, ultimately improving profitability as these areas scale. The increasing adoption of SPO (over 55% of activity in Q1 2025) and emerging revenue streams (doubling year-over-year) are key to this strategy, as they often represent higher-value transactions and diversify the revenue mix.

Performance Reflecting Strategic Shifts

PubMatic's recent financial performance reflects both the impact of external market dynamics and the success of its strategic pivot towards secular growth areas. For the three months ended March 31, 2025, total revenue decreased by 4% year-over-year to $63.8 million. This decline was primarily attributed to the lingering impact of a bidding methodology change by a large DSP buyer in 2024 and the absence of political advertising tailwinds present in the prior year period.

However, looking beyond these specific factors, PubMatic's underlying business demonstrated robust health. Excluding the affected DSP and political spend, year-over-year revenue growth accelerated to 21% in Q1 2025, up from 17% in the second half of 2024. This underlying business now constitutes 70% of total revenue, highlighting a significant and ongoing mix shift towards higher-growth segments.

Key growth drivers in Q1 2025 included:

• Omni-channel Video: Revenue grew 20% year-over-year, representing 40% of total revenue.
• CTV: A standout performer, CTV revenue grew over 50% year-over-year. PubMatic now works with 80% of the top 30 streamers globally and is seeing momentum with traditional broadcasters shifting to streaming monetization.
• Emerging Revenue Streams: This category, including Connect, Convert, and Activate, more than doubled year-over-year, with Connect specifically growing over 100%. These solutions are gaining traction as buyers increasingly seek sell-side targeting and commerce media opportunities.
• Mobile App: While not explicitly broken out for Q1 2025 revenue growth, transcripts from prior quarters consistently showed mobile app revenue growing over 20% year-over-year, driven by the OpenWrap SDK and new partnerships.

Display revenue, which bore the brunt of the large DSP's bidding changes, declined 10% year-over-year in Q1 2025. However, excluding this specific buyer, other display revenues grew strongly at over 20% year-over-year, indicating underlying strength in this format outside of the isolated headwind.

Gross profit for Q1 2025 was $38.2 million, resulting in a gross profit margin of 60%, down from 62% in Q1 2024, primarily due to the revenue decline. However, the continued decrease in cost of revenue per million impressions (down ~22% year-over-year) underscores the ongoing operational efficiency derived from the company's owned infrastructure and software optimizations.

Operating expenses totaled $50.1 million in Q1 2025, an increase from $46.8 million in Q1 2024. This increase was primarily driven by higher personnel costs as the company invests in its sales and technology teams to support growth in secular areas. Despite the operating loss of $11.9 million in Q1 2025, the company reported Adjusted EBITDA of $8.5 million (13% margin), demonstrating underlying profitability when excluding non-cash items like stock-based compensation and depreciation/amortization.

Financial Health and Capital Allocation

PubMatic maintains a solid financial position, providing flexibility to execute its growth strategy. As of March 31, 2025, the company held $144.1 million in cash, cash equivalents, and marketable securities, with no outstanding debt under its $110 million revolving credit facility. Net working capital stood at a healthy $155.1 million.

Cash flow from operations remains positive, generating $15.6 million in Q1 2025. While this was lower than the $24.3 million generated in Q1 2024, it was influenced by changes in working capital, particularly accounts receivable and accounts payable timing related to the large DSP buyer's spend shifts. The company anticipates seasonality to impact quarterly cash flows, with Q1 typically being softer.

Investing activities in Q1 2025 included $1.4 million in property and equipment purchases (primarily data center infrastructure) and $6.9 million in capitalized internal-use software costs, reflecting ongoing investments in the platform.

Demonstrating confidence in its future prospects and commitment to shareholder value, PubMatic's Board of Directors authorized an additional $100 million for share repurchases on May 7, 2025. This expands the total authorization under the program to $275 million and extends its term through December 31, 2026. As of March 31, 2025, $36.8 million remained available under the prior authorization, bringing the total authorized and available to $130.8 million as of May 5, 2025. The company repurchased $3.6 million of stock in Q1 2025. This capital allocation strategy is supported by the company's consistent generation of positive free cash flow, which totaled $7.3 million in Q1 2025.

Outlook and Growth Trajectory

PubMatic's outlook reflects a company growing through temporary headwinds, focused on capitalizing on significant long-term opportunities in the programmatic market. April 2025 revenues were in line with expectations, with the underlying business growing over 15% year-over-year and total revenue flat year-over-year (inclusive of the DSP headwind).

For the second quarter of 2025, PubMatic expects revenue in the range of $66 million to $70 million. This guidance assumes 15%+ year-over-year growth in the underlying business, with the low end reflecting a degree of conservatism regarding potential, though not currently observed, slowdowns in ad spend. Adjusted EBITDA for Q2 2025 is guided to be between $9 million and $12 million, factoring in potential impacts from foreign exchange fluctuations.

Looking to the second half of 2025, management anticipates the underlying business to continue its 15%+ year-over-year growth trajectory. While the second half will face a tough comparison due to strong political advertising spend in the latter half of 2024 (estimated 5-7 percentage point headwind), the company is confident it will deliver year-over-year revenue growth for the full year, growing through this comp.

The strategic rationale underpinning this outlook is the continued momentum in secular growth areas (CTV, mobile app, emerging revenues), the increasing adoption of SPO and PubMatic's differentiated products, and the benefits of operational efficiencies. Full-year 2025 CapEx is projected to be reduced by at least 15% to $15 million, demonstrating the ongoing ability to scale infrastructure capacity through software optimization rather than solely through hardware investment. Operating expenses are expected to increase sequentially in the low single-digit percentages throughout 2025, reflecting targeted investments in sales and technology to drive future growth.

Key Risks and Considerations

While PubMatic is strategically positioned for growth, investors should be mindful of potential risks. The company's performance is highly sensitive to overall advertising demand, which can be impacted by macroeconomic uncertainty, including inflation, interest rate fluctuations, and geopolitical events. Competition in the ad tech market is intense, with large, well-resourced players and rapidly evolving technologies.

Data privacy regulations represent a significant and evolving risk. PubMatic operates across numerous jurisdictions with complex and sometimes conflicting laws (CCPA, GDPR, CIPA, MHMD, etc.). Failure to comply with these regulations could lead to enforcement actions, fines, litigation, and required changes to business practices, increasing costs and potentially limiting the ability to collect and use data essential for targeted advertising. The legal framework around certain practices, like those potentially falling under CIPA or related to health data, remains unsettled, creating uncertainty and potential liability. Changes by browser providers regarding cookies and tracking technologies also pose a risk, although PubMatic has invested heavily in alternative identity solutions.

The share repurchase program, while a positive signal, does not guarantee repurchases and could be modified or terminated. Furthermore, while the company's underlying business is strong, the near-term impact from the large DSP buyer and the political advertising comp could continue to affect reported revenue growth and profitability in the coming quarters.

Conclusion

PubMatic is executing a deliberate strategy to capitalize on the structural shifts accelerating programmatic advertising's growth. By leveraging its differentiated, owned infrastructure and investing in innovative solutions across CTV, mobile app, SPO, and commerce media, the company is building a more diversified and resilient business. While temporary headwinds from a large DSP's bidding changes and prior-year political spend are impacting reported financials in the near term, the strong underlying growth of 21% in Q1 2025 underscores the momentum in its core secular growth drivers.

The company's technological edge, particularly its operational efficiency and increasing application of AI, provides a competitive advantage in a crowded market. Coupled with a healthy balance sheet and a commitment to returning value through share repurchases, PubMatic appears well-positioned to navigate the current environment. The outlook for 15%+ growth in the underlying business in the second half of 2025 and beyond, despite challenging comparisons, signals confidence in its ability to grow through near-term pressures and capture market share in the evolving digital advertising supply chain. Investors should monitor the continued traction in CTV and emerging revenues, the stabilization of the affected DSP's spend, and the company's ability to manage costs and privacy compliance in a dynamic regulatory landscape.