Why Investors Should Consider This Often Overlooked Advertising Gem Over The Trade Desk

The evolution from traditional to digital advertising is a significant trend that continues to captivate investors. This paradigm shift, while already underway for some time, still promises a vast potential for growth. Statista's data anticipates that the digital advertising market will grow by almost 9% this year, with a compound annual growth rate of nearly 7% up to 2028 - suggesting a market size approaching the $1 trillion mark.

One particularly exciting segment within digital advertising is advertising for connected TV (CTV). GroupM, a notable third-party research firm, projects that CTV advertising spend will climb at an annual rate topping 10% from 2023 to 2028.

This potential for growth makes digital advertising, specifically CTV advertising, an attractive investment opportunity. The Trade Desk has emerged as a popular choice for investors, having experienced impressive growth in trailing 12-month revenue since its IPO in 2016. The stock's performance reflects the not only the industry's growth but also The Trade Desk's gains in market share especially within the CTV space. Early investors have seen significant returns, with an initial $1,000 investment ballooning to approximately $26,000.

However, The Trade Desk's success has led to a high stock valuation, causing some investors to look for more affordable options. Enter PubMatic, a small-cap company that operates on the publisher side of digital advertising, helping to place ads in available slots. While less famous than The Trade Desk, PubMatic is proving to be a sound business choice, with a growing number of publisher partnerships and increasing ad impressions year over year, particularly in the CTV sector.

PubMatic distinguishes itself by owning its infrastructure, affording it more control over costs, in contrast to rivals that rely on external cloud services. Its total ad impressions rose by 32% in 2023, and yet it managed to reduce its cost per thousand impressions by 8%.

The company's financial health is further accentuated by its positive free cash flow, lack of debt, and a strong cash position. With these fundamentals, PubMatic is well situated for future growth.

A Better Bargain?

Though PubMatic might seem more vulnerable within ad tech when compared to an established entity like The Trade Desk, it compensates with sound financial and operational strategies. For investors interested in the digital advertising sphere, specifically CTV advertising, PubMatic becomes an attractive proposition, not just for its growth potential but also its comparative affordability.

When looking at valuation metrics like price-to-sales and free-cash-flow ratios, PubMatic offers a far more reasonable entry point for investors than The Trade Desk. This, combined with its exposure to the same industry growth trends, makes PubMatic a potentially smart investment choice for those seeking a good business at a better price.

Digital, Advertising, CTV