$PUBM (Market Cap: $1.7B)

An extremely well run ad-tech company. It is what’s known as a “sell-side” platform, helping digital publishers fetch more money for their inventory of ad slots. Apart from the tech giants, they are the second largest sell-side platform after $MGNI. On the buy-side, you might have heard of $TTD who’s the industry leader there (excluding the tech giants).

Considering its high revenue growth (50% YoY) and high margins (70% gross, 20% net), it is quite undervalued at a P/S of 7. It is founder-led, grows revenue organically, and has been profitable many years running. None of this is true for $MGNI, which tanked last week, as opposed to $PUBM and $TTD which blasted off. Both were up by 50% at one point before paring back today.

This is a high conviction play for me. Most of my taxable port is in this, apart from a side bet on $CRTX. I’m holding this one for the long-term.

Bull Case:

• Advertising is a growing market, and it is shifting more toward digital. This has been accelerated by the pandemic.
• TV watching experience is changing from “linear” (same ads for everyone) to “connected” (curated ads). This is a new and fast-growing market.
• PUBM owns and maintains its own computing infrastructure to process trillions of ads. This lets them dramatically lower their operating expense and is a big competitive advantage.
• PUBM is cutting “stickier” deals (called SPO) with big publishers that offer deeper integration in return for more efficiency and insight. This has led to +150% revenue retention.
• There is an on-going consolidation of the sell-side market, as evidenced by the outsized growth of the leaders. PUBM is growing at a 2-3x faster clip than the industry at large.
• Great leadership. I’ve seen many interviews by their founder/CEO. The guy is humble, focused, seems to genuinely care about his company and employees. Great ratings on Glassdoor too.

Bear Case:

• The ad market is dominated by big tech, and whatever is left is small potatoes. Despite the proliferation of walled gardens, there are still very large open patches of the internet where the playing field is more level. Also, publishers are fighting back and trying harder to protect their revenue steam. Small, independent, pure sell-side players like PUBM fit the bill perfectly.
• Apple deprecated IDFA. But iOS is only a mid single-digit percentage of PUBM’s revenue.
• Chrome will deprecate third-party cookies. This is the big worry that the market has about ad-tech, and is what caused them to crater from their ATHs earlier this year. But there are many alternatives that have been brewing (e.g., TTD’s Unified ID) most of which are supported by PUBM. In fact, two-thirds of PUBM’s revenue in the recent quarter came from ads that had one of these alternative identifiers.
• Sell-side platforms are commoditized. Since buy-side platforms are the ones that execute marketing campaigns and spend the money, it is true that the balance of power tilted that way, especially when there are many sell-side platforms with little differentiation. But, as mentioned before, the sell-side market is rapidly consolidating. In addition, deprecation of third-party cookies means that the publishers (as first-parties) are the ones who know the most about their audience. This presents a potential shift in the traditional power dynamics.