A Look Under the Hood as PubMatic Goes Public

PubMatic, the supply-side platform founded in 2006, has officially gone public. A month after filing its S-1, the company is now trading on the Nasdaq under PUBM, opening at $20 a share. PubMatic, which is incorporated in Delaware but operates in California’s Bay Area, is looking to raise $118 million. All of this comes as fellow ad-tech companies, including DoubleVerify and AppLovin, are similarly rumored to be preparing their own IPOs. This wave of "public ad tech 2.0" will be judged within the context of programmatic players that went public in the early to mid-2010s—with mixed results. Company S-1 Filings offer financial markets observers a candid depiction of the landscape a company operates within, according to its management. Below are some of the disclosures PubMatic’s management felt compelled to make to investors. PubMatic’s operations have been cash-flow positive for six years The company posted $92.5 million in revenue through the first three quarters of 2020, a 33% growth year-over-year. Gross profit for the first nine months of the year totaled $62.77 million. But a lot of that money comes from a handful of players On the sell side, PubMatic has earned at least one-fifth of its revenue from Verizon Media Group, its largest publisher partner, since 2018. On the buy side, The Trade Desk and Google’s DV360 account for a “significant portion” of ad impressions purchased from the SSP. PubMatic signed deals with The Trade Desk and Google in 2011 and 2012. PubMatic doesn’t have minimum spend commitments for buyers to use its platform. Both its sell- and buy-side deals automatically renew annually unless one of the respective parties says otherwise. PubMatic: "In the third quarter of 2020, we served approximately 1,100 publishers and app developers worldwide on our platform, consisting of over 55,000 domains and 8,000 apps." The inescapable identity problem Just like every other ad-tech company, PubMatic has to manage the ramifications of Google’s decision to eliminate third-party cookies from its Chrome browser, and Apple’s move to make its mobile identifier, IDFA, opt-in. Both moves limit the ability for companies like PubMatic to track users across the web and in mobile apps, which could ultimately “reduce the value of the ad impressions” it serves. “Although we believe our platform is well positioned to adapt and continue to provide key data insights to our publishers without cookies, this transition could be more disruptive, slower or more expensive than we currently anticipate, and could materially affect our ability to serve our customers, and our business, results of operations and financial condition could be adversely affected,” treads its S-1. CTV as a savior Connected TV has seen massive growth as people stream more content while they stay at home during the pandemic. That shift away from linear TV and toward streaming is expected to continue next year. While identity is still largely fragmented and unstandardized, CTV doesn’t rely on dwindling trackers like cookies or IDFA. PubMatic recently built new tech offerings for streaming to capture the ad dollars flowing into CTV. That includes a practice called ad potting, or the ability to place the desired number of ads in a commercial break. “We have invested significant time and resources cultivating relationships with CTV publishers to establish best practices and evangelize the benefits of programmatic CTV,” said the company. From open auctions to private marketplaces As third-party cookies and IDFA go away, advertisers and publishers are looking to form closer relationships around their first-party data in order to still serve targeted ads to users. Direct relationships are also extremely common in CTV, where inventory is more scarce. Plus, traditional broadcasters that have moved into the space want tighter control of their inventory and accompanying audience data, a standard in traditional linear TV but abnormal in open auctions across the web. Enter private marketplaces (PMPs), a private ad auction where publishers allow only a handful of select advertisers. PubMatic sees “significant and growing demand” for PMPs, which could present a challenge. "PMPs may involve lower fees than we can charge for our real-time bidding services, which may not be fully offset by anticipated higher pricing. In some cases, we have experienced fee pressure as we have built out our PMP offering, and we expect this fee pressure to increase as more competitors, including new entrants as well as publishers themselves, build their own technology and infrastructure to enter this business,” the company said in its S-1. The S-1 continued: “Even if publishers and buyers embrace our offerings, the positive effect of our PMP offerings on our results of operations may be offset or negated if PMPs cannibalize our open marketplace transaction volumes, by similar offerings from our competitors, or other adverse developments.”