We came across a bullish thesis on PubMatic, Inc. (PUBM) on Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on PUBM. PubMatic, Inc. (PUBM)'s share was trading at $8.14 as of April 16^th. PUBM’s trailing and forward P/E were 35.39 and 53.48 respectively according to Yahoo Finance.

A close-up of a busy web page, representing the creative platform solutions of the digital advertising solutions company.

PubMatic (PUBM) presents an intriguing opportunity as a small-cap, capital-light advertising technology platform trading at heavily compressed valuations despite steady growth and profitability. While 2024 saw modest 9% revenue growth, the company still maintained a healthy 32% EBITDA margin, just surpassing the Rule of 40 threshold. Typically, such performance would command a price-to-sales multiple above 4x, yet PUBM currently trades at just 1.38x, down sharply from 8.5x in 2021. This dramatic multiple compression comes despite revenue per share rising from $4.01 to $5.57, signaling a disconnect between operating fundamentals and market valuation. The stock’s collapse from $24 to $8.30 has created a compelling setup for mean reversion, especially as the company has generated over $73 million in operating cash flow and carries minimal debt, with a market cap of only $402 million and a robust 18.25% free cash flow yield. Management is guiding for 15% revenue growth in 2025 and has been aggressively buying back shares, reducing the float by 8% over the last two years while spending over $140 million on repurchases.

While PUBM operates in a competitive landscape alongside tech giants like Google, Amazon, and Microsoft-owned Xandr, it differentiates itself by aligning with advertisers rather than publishers, creating room for independence in a market increasingly wary of walled gardens. PUBM's appeal is especially strong for brands unwilling to store ad data within ecosystems that may also be their direct competitors. However, PubMatic’s smaller scale and some customer concentration create risks, particularly in a cookieless future where larger platforms hold a data advantage. Nevertheless, the platform continues to build a growing marketplace, benefiting from network effects as more content creators and advertisers join. The company is seeing growth across all key channels—mobile, connected TV, omnichannel, and emerging markets—and is already integrating AI to optimize its platform. PubMatic stands to gain further from trends like the rise of free ad-supported streaming services such as Roku Channel and Tubi, the latter capturing 30% of the ad-supported video-on-demand market in 2024, even surpassing YouTube.

Founder-led, with the CEO and CIO holding a combined 20% stake, PUBM is prioritizing margin expansion and cash flow discipline. If 2025–2026 revenue growth targets are met and share buybacks continue to shrink the float, even a conservative valuation implies a strong return. With a 2x price-to-sales multiple, the stock could reach $16.41 by 2026—a 40% annualized return. At 3–4x multiples, the upside reaches $24.62 to $32.82, underscoring a significant opportunity for rerating.

PubMatic, Inc. (PUBM) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 17 hedge fund portfolios held PUBM at the end of the fourth quarter which was 13 in the previous quarter. While we acknowledge the risk and potential of PUBM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PUBM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.