Cheatsheet: PubMatic plots path to growth as a public ad tech vendor

Here’s the rundown on PubMatic’s post IPO plan for growth in an ad tech market that’s undoubtedly having a moment in spite of its unresolved issues.

The key details

• PubMatic raised $118 million yesterday off the back of 5.9 million shares sold at $20 each. That was up from the $16 to $18 price range the ad tech vendor had initially set.
• There are currently around 1,100 publishers and app developers selling inventory via the platform, which includes biggies like Verizon, News Corp and Zynga.
• PubMatic’s programmatic auctions handle 134 billion ad impressions daily, that generate one trillion advertising bids a day
• PubMatic has been self-funded since 2012, though did raise $60 million in venture capital.
• PubMatic now trades on Nasdaq under the ticker PUBM. 
• Over the last 12 months through the end of Q3 2020, PubMatic made $127M in revenue, up 33% year-over-year.
• PubMatic delivered its sixth straight year of positive cash flows from operations.

PubMatic’s plan

What usually happens after companies successfully go public is that they use the influx of capital to expand, to hire, to acquire businesses, to move into bigger offices. PubMatic hopes it’s in a position to do the same once its IPO closes on December 11. 

“While we’ve been self-funding for over half a decade we want to further accelerate our growth and capitalize on the large market opportunity,” the ad tech vendor’s chief commercial officer Jeff Hirsch told Digiday. These are heady times for ad tech vendors like PubMatic. Increasingly advertisers are buying more ads online in the midst of the coronavirus crisis and in turn are using more ad tech to do so. “It’s a good time to be in digital as there are a wealth of opportunities,” said Hirsch.

The question for PubMatic is where to start. 

There are three priority areas for PubMatic: the first is to focus on convincing more publishers to let it sell impressions on their behalf. The second is to help advertisers and their agencies get smarter and more efficient around how they buy impressions and from whom. Lastly is figuring out how to bring identity resolution (i.e. how the walled gardens are able to understand each user) to the open web. 

Given its trend-of-the- moment status in ad tech, CTV is likely to be what a public PubMatic prioritizes. In many ways, CTV is a chance for ad tech vendors to bring in reams of dollars they wouldn’t have usually had access to as so much more of the ads there are now bought with dollars usually reserved for TV.

As Hirsch explained: “We’re seeing TV money move into digital as buyers benefit from technology and automation.” PubMatic’s success will be predicated, at least in part, on its ability to make it easier for CTV media owners to sell their inventory at scale. In other words, PubMatic wants to play a role in allowing more publishers to run simultaneous auctions from all bidders to increase their chances of making the most money from them, a process commonly referred to as header bidding.

“That’s an area where we believe we can provide value in the CTV world,” said Hirsch

Why it matters

There is a historical irony at the heart of Wall Street’s current infatuation with ad tech. Specialist ad tech vendors are pitching themselves as a jack of all trades to keen-eyed investors — but in doing so those pivots are returning the market to the more freewheeling and discursive ways of the early publicly traded ad tech vendors that investors eventually turned on.

Reading between the lines

PubMatic isn’t desperate for money — at least not yet. Otherwise, it wouldn’t have been so conservative with its IPO expectations of $115 million. Not when investors have warm, fuzzy feelings for ad tech thanks to The Trade Desk’s robust success since its own IPO in 2016. Investors are paying more than 35 times the ad tech vendor’s projected revenues for next year. 

It’s not the initial investor reaction PubMatic is arguably focused on, its long-term vision. A big part of The Trade Desk’s success since its IPO four years ago has been how it articulated its intrinsic value to the industry. 

“When The Trade Desk’s IPO happened they framed themselves in the minds of investors that they were going to be an alternative, not a competitor, to Google,” said Bob Regular, CEO of Infolinks. “They understand that in any market you need at least two choices — Google can’t be your only choice.”

Pubmatic needs to create a narrative around the business. 

“We’re not a data-management platform, nor are we a demand-side platform. We’re an SSP for publishers,” said Hirsch. “But what we do find is we’re able to leverage our infrastructure more robustly for more parts of the market.”

Problems ahead

Between Google phasing out third-party cookies from Chrome and Apple making its own mobile identifier opt-in, the mechanisms ad tech vendors like Pubmatic use to track people across the web and mobile apps are becoming scarce. That could limit the quality of ad impressions those businesses are able to sell. Furthermore, Pubmatic makes a lot of money from a handful of players like Verizon. If one of those businesses struggles then it could mean bad news for Pubmatic.

The big picture

Companies like PubMatic are starting to realize that the industry is moving to an age of integrated ad tech services. There was a time when it was enough for PubMatic to succeed on the strength of the publishers it represented. That’s no longer possible in a market that’s gone through so much consolidation and left most ad tech vendors selling the same impressions. Now, those businesses are having to build themselves up again on the strength of their ties to buyers, not sellers.

PubMatic did this earlier than others. It did this by building preferred relationships with media buyers — so in exchange for larger commitments from them the ad tech vendor would offer incentives like better data, new tools and discounts. And at the same time, PubMatic built strong technical relationships with the ad tech vendors like The Trade Desk that compete in its auctions. Doing so meant the chances of failed bids from those ad tech vendors was at a minimum. 

While trying to be all things to everyone could dilute PubMatic’s value, in some ways it’s the only play it has. Buyers, publishers and former employees interviewed by Digiday describe a well run, but an ultimately ordinary ad tech that has never fully been able to differentiate itself around some of the sector’s milestone moments, from the advent of header bidding to the emergence of CTV.

Now is its time to change that.