Why PubMatic Stock Vaulted Higher on Wednesday

What happened

Shares of PubMatic (NASDAQ:PUBM) charged sharply higher Wednesday, surging as much as 15.7%. As of 12:15 p.m. ET, the stock was up 12.3%.

The catalyst that drove the digital advertiser higher was first-quarter financial results that came in above even the most bullish estimates.

So what

PubMatic delivered revenue of $55.4 million, up 2% year over year, allaying investor fears after posting a year-over-year decline last quarter. Furthermore, the company delivered adjusted earnings per share (EPS) of $0.02.

To put the results in context, analysts' consensus estimates were calling for revenue of $51 million and a loss per share of $0.18.

Bolstering investor enthusiasm even more were strong results in the connected TV (CTV) segment, one of PubMatic's biggest growth areas, which increased 50% year over year. The company also added 65 new publishers during the quarter, bringing its total customer count to more than 1,700. Existing customers are also spending more, as evidenced by PubMatic's net dollar revenue retention rate of 105%.

Like many companies in the digital advertising space, PubMatic has been the victim of a marked slowdown in marketing spending, as businesses shore up their reserves in the event of a prolonged downturn. It's easy to pull back and ramp up advertising spending in response to macroeconomic conditions, which has weighed on adtech stocks, including PubMatic.

Now what

After PubMatic's return to growth, management's second-quarter forecast was also more robust than expected. The company is guiding for second-quarter revenue of $59.55 million, which would represent a year-over-year decline of roughly 6% at the midpoint of its guidance. While that might not seem worth celebrating, it was well ahead of analysts' consensus estimates, which were calling for revenue for $58.1 million.

As a result of the depressed advertising market, PubMatic's valuation is still near all-time lows, selling for 2.5 times next year's sales.

The stronger-than-expected results, combined with unexpectedly solid guidance, was enough of a catalyst to send PubMatic stock soaring higher.

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Danny Vena 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.