Why PubMatic Stock Fell 33.7% This Morning

Key Points

• PubMatic stock fell 33.7%, despite beating second-quarter earnings and revenue expectations.

• Video-advertising revenue jumped 34%, with connected TV ads growing 50% year over year.

• The stock fell to an all-time low.

• 10 stocks we like better than PubMatic ›

Shares of PubMatic (NASDAQ: PUBM) took a swan dive on Tuesday morning, starting the morning session 33.7% below Monday's closing price. The company reported second-quarter earnings last night with strong results but uninspiring forward guidance.

The stock had recovered to a 19.4% drop by 12:50 p.m. ET, but that's still a painful price cut.

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Beating estimates isn't always enough for Wall Street

The digital-advertising expert saw second-quarter sales rise 6% year over year to $71.1 million. Omnichannel video revenue jumped 34% higher, led by a 50% increase in video ads for connected TVs (CTV). The adjusted bottom line swung from a $0.10 net loss to a $0.05 profit per diluted share.

The average analyst would have settled for a $0.16 net loss per share on sales near $67.8 million. The results also exceeded PubMatic's guidance targets across the board.

However, the stock plummeted anyway due to a modest view of the upcoming quarter. The midpoint of management's guidance range points to a 4% year-over-year revenue drop and weaker adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

Image source: Getty Images.

PubMatic might be sandbagging its guidance again

On the earnings call, PubMatic CEO Rajeev Goel said that the digital-advertising market is changing, as is PubMatic's strategy. The company is diversifying its customer list -- a necessary step after losing a significant amount of business from a large but unnamed client in the second quarter. It's also exploring ways to use artificial intelligence (AI) in the creation and management of online ad campaigns.

Investors hated the muted third-quarter outlook, but PubMatic is in the habit of setting up low guidance targets, only to knock them down with authority. Is this report's soft Q3 guidance another example of this tactic? CFO Steve Pantelick's remarks point in that direction, as he presented the targets as "a conservative approach."

PubMatic's stock dropped to an all-time low today. Some would call it a falling knife, but I see it as a tempting buy right now.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PubMatic. The Motley Fool has a disclosure policy.