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Shares of advertising technology (adtech) supply side platform (SSP) PubMatic (NASDAQ: PUBM) skyrocketed on Thursday after the company reported financial results for the third quarter of 2023.

Revenue was down from the prior-year period. But investors see signs that the business is starting to recover. And that’s why PubMatic stock was up 22% as of 11:10 a.m. ET.

How was Q3 good for PubMatic?

In Q3, PubMatic generated revenue of $63.7 million, which was ahead of management’s guidance of $58 million to $61 million. But it was down about 1% from the prior-year period. The company’s net income of $1.8 million was also down substantially from its net income of $3.3 million in the third quarter of 2022.

The market’s expectations for PubMatic were very low going into the Q3 report because the adtech market is generally struggling right now. However, the company gave the market a glimmer of hope.

In Q3, PubMatic’s ad impressions were up 33% year over year — this is the amount of ads the company is displaying. And CFO Steve Pantelick said that the company’s cost per mille (CPM) — how much it gets per ad — stabilized in July.

In summary, PubMatic may have made it through the worst of the ad slowdown, and the market is celebrating today.

Back to growth

According to PubMatic’s management, the fourth quarter has started out with year-over-year revenue growth. The company expects to generate Q4 revenue of $76 million to $80 million, which would be up nicely from its revenue of $74.3 million in the prior-year period. Moreover, the low end of this guidance would still be a quarterly revenue record.

However, PubMatic’s guidance does come with a catch. Management is expecting the CPM stabilization it’s experiencing to continue for the rest of the year. But this is largely outside the company’s control and driven by macroeconomic conditions.

Therefore, PubMatic’s results and guidance are very encouraging for shareholders. But it could come up short if economic headwinds unexpectedly intensify.

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Jon Quast has positions in PubMatic. The Motley Fool has positions in and recommends PubMatic. The Motley Fool has a disclosure policy.

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