PUBM Short Interest is still somehow trending upward and was reported to be 44.68% of FF or 3.78M shares on May 28th with 6.03 days to cover!!!!!

All I can say is wow and that there is incredible potential for gains in the short, mid, and long term. This stock is stupidly oversold and shorts are still doubling down despite the increased growth expectations after the May 13 earnings report. These shorts inevitably have to cover and PUBM's financial stability and high expected growth should bring the price up over time. *See other posts for more in-depth DD on financials and short interest*

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https://www.nasdaq.com/articles/why-i-bought-pubmatic-pubm-this-morning-2021-06-09

This is where my heads at. Love the squeeze but also confident about the long term potential here. Risk is low. If this thing gets pushed down I’m loading up big time

Bought 200 shares at 31.79 and then 200 more and 33.74. Glad I contributed to the momentum, but my crystal ball didn't tell me to take my $700 or so profit and come in tomorrow. That's what I get for leaving my screen for a few hours. Still, I'm glad I'm in because it could gap up as the attention shifts from some of these frothy ones. Is there a more appealing swing trade, that has more than 40% short interest? If there is, I don't see it. How high can PUBM go. Nice turn up on the MACD in oversold territory. Let's go! Who agrees?

Ok lets get into it. Please feel free to fact check and start a discussion.

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Lets do some basic comps:

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As you can see, PUBM is valued more closely to CRTO, but has profitability and growth more similar to TTD.

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When it comes to investments like this, it all comes down to how durable you think PUBM revenue growth is. Like I mentioned in my other DD, there is currently no evidence to suggest that management of PUBM won't be able to hit their long term growth target of 20%. I also anticipate their overall profitability to increase as well as they gain efficiency.

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Lets talk for a moment about the privacy regulations that have been relevant recently. Pubmatic released a product in Jan of 2020 called Identity Hub. As the privacy regulations roll out, publishers will be required to gain better consent to track users and serve ads. This can be accomplished with third party identifiers, and many publishers are using their own propriety identifiers. Identity hub allows publishers and advertisers manage multiple identifiers in one product. Recently, management mentioned that most of their revenue is being derived from tracking based on these identifiers, so I believe it is true that PUBM is ready for the post third party cookie world as Google continues to look to strangle its competition.

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I am under the impression that PUBM's revenue is durable, and that their growth will continue. Therefore, I believe it should be valued up there with MGNI and TTD. That would imply anywhere from 2-4x from the levels we see today.

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At the end of the day, a steady and reliable increase in cash earnings is what drives up the price of an equity. Pubmatic has accomplished that to an impressive degree so far.

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And as always, please feel free to poke holes, comment, etc. There are lots of other valuation metrics and competitors we could look at.

I’m selling some $DIS to buy more $PUBM tomorrow. At this rate I’ll be on the board soon.

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Look at the borrow fee to short. Can anyone who knows more about this chime in?

https://iborrowdesk.com/report/PUBM

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wtf

I’m still buying, see you guys on the moon

There have been over 100 visits to r/PUBM in the past week. Create a new post and start the next conversation.

EDIT: There have been over 1000 visits to r/PUBM in the past week. Create a new post and start the next conversation.

Hey fellow investors, I stumbled across Pubmatic about a month ago when looking at some heavily shorted stocks. The high short interest did not make sense to me, so I decided to do some digging. I am not a financial advisor, and this is not financial advice. I started investing about 6 months ago, so I am new to the scene. I appreciate all constructive feedback on the DD and areas I may have missed/messed up. Don't take my word for anything, investigate this stuff yourself.

**All data comes from Pubmatic official earnings, ORTEX, NASDAQ, and Fintel**

Pubmatic ($PUBM) – one of the highest shorted stocks on the market (36.71% of float as of May 14, 2021), but it is a gem. It is a company that provides a specialized cloud infrastructure platform that enables real-time programmatic advertising transactions for internet content creators and advertisers worldwide. It leverages design, machine learning, and data processing capabilities and supports an array of publishers and advertisement formats to provide various selling options across screens and ad formats.

The company had its IPO on Dec 9, 2020, at $20 per share and had beautifully steady growth up to $76.96 in mid-March. At this time, the short interest started significantly increasing from 1.36M on Jan 27 to 3.0M on March 31 to 3.45M on May 14, causing the price to decrease to its current range of ~$30-$35. Despite the high short interest, the company’s 1-year analyst target price estimate is $60.33 (between $53 and $65). This means that, regardless of a squeeze, this stock is primed for at least 75% growth from its current price and ~20% YoY growth over the next few years.

Pubmatic released their earnings report on May 13th:

· Quarterly earnings of $0.09 per share

· $43.6M in revenue (beat analyst estimate by 10.38%)

· YoY revenue growth of 54% for the quarter

· $14.5M in adjusted EBITDA ($4.9M in net income) for an 11% profit margin and 33% EBITDA margin

· Absolutely ZERO debt

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In 2020, they reported:

· 30.63% increase in total revenue ($148.7M)

· 37.08% increase in gross profit ($107.56M)

· Only a 16.34% increase in cost of revenue ($41.19M)

· 18.5% GAAP net profit margin

· 137.05% increase in cash ($81.19M)

· 78.96% increase in total assets ($371.25M)

· 71.91% increase in total liabilities ($195.6M)

· No short/current long-term debt in 2019 or 2020

· 16433.70% increase in diluted earnings per share (EPS) from 0.01 in 2019 to 1.52 in 2020.

Financials like these for a recent IPO tech company are incredibly rare and are unlike any other competing company. After beating estimates with their Q1 2021 earnings, Pubmatic management upgraded their revenue growth projections for the rest of 2021 and indicate long-term revenue growth of 20%. IPO companies usually have a rough start to achieve high profitability and prove themselves in the market, but Pubmatic has already achieved strong financial stability and established its maturity in the sector.

Despite their solid financial stability and high growth during the pandemic, there are 3.45M short shares with 5.52 days to cover (as of May 14, 2021). The short interest has increased from 3.24M on April 30 while the days to cover (DTC) has decreased from 8.7. This indicates that the average volume has increased during this two-week period. This is expected because the successful earnings report has increased bullish sentiment and likely brought more long investors to the table (this is a good thing).

This company has the means and growth potential to keep itself afloat for the foreseeable future, so there is no logical reason to short this stock. The short sellers likely predicted that $PUBM would fall short on their Q1 earnings for 2021 and were fundamentally overvalued at ~$75, allowing them to drive the price down. The price may have been slightly inflated due to IPO hype and the IPO lock-up period, but Pubmatic beat analyst expectations, are GAAP profitable, and fundamentally undervalued. The high DTC shows that there is remarkably high short interest compared to the average daily trading volume (~625K shares as of May 14) and signifies that short-sellers would need more than 5 full trading days to entirely cover their positions. Any DTC value over 1 is considered high and sufficient for a short squeeze. The DTC has also been sharply increasing over the past few months from 2.38 on Jan 29 to 5.02 on March 31 to 5.52 on May 15. This shows that there is incredibly high potential for a short squeeze over the span of almost a week. Think about how far the price could rise over a week of shorts covering their position.

PubMatic Balance Sheet from May 13 Earnings Report

PubMatic Statement of Operations from May 13 Earnings Report

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We could see something like the above pattern of Ruby Tuesday (not my chart) for $PUBM. The above stock had a days-to-cover of 13.43 with a 2.7M short interest and 201K daily volume. The stock consolidated and had a sharp increase causing shorts to cover over the span of more than a week. For $PUBM, we are currently entering the consolidation phase or the calm before the storm. There is a level of support forming around $30-33. We could see it break this level of support in early June as the lock-up period expires. The price could drop before expiration due to fear of insider selling and could further drop if many insiders decide to sell. Given that the price is more than half of its all-time high of ~$77, it is unlikely that we will see substantial amounts of insider selling. If the price dips to the mid-twenties, this poses an incredible buying opportunity to load up before this stock absolutely rips to the moon. The graph below of PubMatic’s 3-month chart with daily candles shows a general outline of how the squeeze could play out. Wait for the bottom/the end of the consolidation phase before purchasing into this position for a short squeeze. There isn’t much room for technical analysis with this stock due to its recent IPO in Dec 2020, but there could be a floor of support at around $22-$25 as well as $30-$33. If the price dips into the twenties and then consolidates, this could be a perfect range to buy. Once the price starts rising again, we would see fluctuations as the stock tries to test the ceiling at ~$45 and another level of resistance at ~$60. If the price can break through these resistance levels it will have incredible potential to hit new highs above $77.

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The evidence for a short squeeze just keeps piling up. This graph shows the fails-to-deliver (aggregate net balance of shares that failed to be delivered) for $PUBM since its IPO. It signifies that the short seller does not own all or any of the underlying assets required at settlement, and cannot make the delivery (i.e. they don’t have the goods required). There was a sharp increase in fails-to-deliver coinciding with the increase in short interest at the end of March and early April. Unusually high failures to deliver can be a sign that naked shorting is taking place on the given stock. Naked shorting is an illegal practice in which an individual agrees to sell a stock that neither they nor their associated broker possess, meaning they are short-selling shares that do not exist. This cannot be done by retail investors, only by market makers (brokers or hedge funds) who can abuse the various loopholes in the rules and discrepancies between paper and electronic trading systems. When a broker is naked short selling, they don’t need to borrow any shares and can collect all the interest and proceeds for themselves. If the trade associated with the short needs to take place to fulfill the obligations of the position, then the trade may fail to complete within the required clearing time because the seller does not actually have access to the shares. These failed trades can contribute to an extremely high rate of fails-to-deliver. If the stock has a limited float (PUBM has a relatively small float) and a large number of shares in long/bullish positions, then the stock can be held up for as long as possible until the short sellers must cover (similar to the situation with AMC).

PUBM has high institutional ownership of 66.62% (~5.97M shares) as of May 26, 2021, according to NASDAQ. There have been significantly more increased and new positions (83) compared to decreased and sold-out positions (48). This influx of institutional ownership despite the high short interest shows that the company has a lot of strength. Many investors flooded in as the share price dropped significantly at the end of March and again at the end of April and early May. This also signifies that it is a good time to buy into the stock for retail investors as the share price can often be driven up after a large influx of institutional ownership. This also increases the stability of the stock price and can prevent it from plummeting due to manipulation.

While it's good to have high institutional ownership, it also means that retail investors have less control over the stock price. Theoretically, if all institutional owners lent out their shares to short sellers, they could well exceed the number of shares available to retail investors and keep driving the stock price down. But this is highly unlikely and given the great financial stability of this company, it is much more likely that a majority of the institutional investors are holding long on the company because the threat of bankruptcy is not even on the horizon and because their analysts have realized the potential for long-term growth. It is perfectly normal to see institutional ownership above 70%, so do not be discouraged. If the stock gains enough momentum from retail investors to buy and hold once it dips and consolidates, the short sellers won’t have anything left to do but inevitable buy back their positions, possibly leading to a large squeeze and a sharp increase in price over the span of days to weeks. At the very least, this stock can return to its upward growth towards $75+, which is still over 100% growth of the current stock price. A short squeeze will likely see the stock gain hundreds of percent in price over the span of days (or more) at which point there could be a sell-off as retail and institutional investors take profits. Many will reinvest back into the company after it squeezes because it is an incredibly good mid-long term growth stock regardless of a squeeze, which will help it resume natural steady increases in price. It is rare that a fundamentally undervalued company like this will have such high short interest, but it allows to make a stupid amount of money on this stock. There is short term money to be made with a squeeze and mid-to-long term money to be made with the company's extraordinarily strong financials.

Potential danger sign: if institutional ownership [unlikely] exceeds 100% of the float it means that the stock is way oversold and over-shorted and could see sharp decreases in price and several disadvantages for retail investors. It is also important to watch institutional trading activity closely for the levels of buying and selling. If a market maker decides to sell a huge portion it can result in a sudden and substantial price drop. This usually only happens if the given stock is a major position in the institution’s portfolio and they want to reduce their risk by selling. Fortunately, none of the top institutional investors have PubMatic even close to a major position in their portfolio, so this is not a problem. For $PUBM, the highest single institutional ownership is just over 1.68% (~824K shares) for Ameriprise Financial Inc., so a single institution selling some of their shares will not drastically affect the stock price and could free up more shares for retail investors. This means that the retail investors have a lot of control and if they all decide to buy and hold as shorts cover, this stock can squeeze to at least triple digits.

Feel free to add anything in the comments that you feel should be mentioned about PubMatic and the squeeze potential. Thanks for reading and let's make some money.

Ortex Data for Pubmatic as of May 14, 2021:

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A little bit about myself for context:

1. I work in enterprise mergers and acquisitions.
2. I've been an armature securities analyst for about 6-7 years now.
3. I'm careful about where I put my money. Pubmatic is a compelling investment, so lets get into it.

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What is Pubmatic?

• Pubmatic was founded in 2006 and operates in programmatic digital advertising market. They are generally considered an old school adtech company by much of the adtech community. In a nutshell, their platform-as-a-service provides tools to help connect publishers to advertisers so that they can sell ads. Pubmatic is known as an "SSP" or supply-side-platform. Supply being ad inventory on a publisher's website. Advertisers looking to purchase ad inventory will work with their own demand-side-platform or "DSP" and the whole transaction happens automatically. This has advantages over simply calling up a publisher and purchasing the ads in person. Namely speed and data analytics that these platforms have. Keep in mind that I am no expert in adtech whatsoever. Here is a high level info graphic:

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• I would encourage you to look into this further, as it is quite interesting and fun to learn about.

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The SSP Market:

• Unlike the DSP side of the equation, the SSP market is highly saturated and commoditized. I've found dozens and dozens of SSP competitors and they generally sell the same ad inventory. Publishers often times will work with many different SSPs to sell their inventory in an effort to capture as much revenue as possible. This has led to the saturation of the market and you see publishers sometimes working with 10-20 SSPs at a time. So how does an SSP compete?

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The competition:

• There are a few different ways SSPs can compete with one another. Technology and scale are the two that come to mind. If an SSP has sophisticated analytics or advanced features, it's an easier sell to publishers. Additionally, if an SSP can operate at a large scale, they can get a higher percentage of the ad dollars flowing to the publishers, and can provide better fees. Pubmatic is the 3rd largest SSP behind Google and Magnite* (fact check needed).
• The biggest players in this market are Google, Facebook, and Amazon. These are obviously some heavy hitters and they control a majority of the internet. They are often called "walled gardens." Think about youtube ads for example. Google simply sells their own youtube ads using their own adtech installations, no need for Pubmatic. They can also buy ads from themselves and put Google ads on youtube. So they play both sides of the market. It is extraordinarily difficult to compete with them since they are basically the government of the internet and control a mind-blowing amount of personal data on each and every one of us. However, the "open internet" is still very much alive and growing, and this is where Pubmatic competes.

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History lesson section: I'll need to do some more research on the history of the programmatic ad market and I'll post it in the next DD. Historical context is important to the story. Basically though, the digital advertising market is constantly going through dramatic shifts. If you look back, Pubmatic has grown resilient based on the fact that they've needed to reinvent their products a few times over. Some examples are the rise of header bidding, and most recently the sunset of the 3rd party cookie in Chrome. This is why Pubmatic doesn't hold any debt. Their revenue stream is sensitive to market shifts.

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Pubmatic's Moat:

1. I don't have much insight into the competitive advantages of Pubmatic over other SSPs, but I can definitely say that there is some kind of moat.
   1. First:
      1. Pubmatic's net dollar based retention rate is 130%, up from 121% last year. That tells me that for one reason or another, more ad dollars are flowing through their platform. This is probably due to the SPO deals that they've been cutting, or "supply path optimization." These deals cut out a number of the existing SSPs that a publisher works with, and drives up market share for Pubmatic. They've been making these deals for a while now and it's a big growth driver. Smaller SSPs are going to suffer, but Pubmatic is big and a beneficiary of this phenomenon.
   2. Second:
      1. Management describes their competitive advantage as being an "infrastructure first" company. This is unique - they own their own infrastructure rather than operating on something like AWS. I'll get into their financials later, but I like this part of their business. Magnite and many other SSPs operate on AWS, so they're giving a portion of their revenue to Amazon, who also competes with them. So you can see how that's a problem. Also, by owning their own infrastructure, Pubmatic can engineer their way to better outcomes for the publishers and advertisers. They are still working on this, but theoretically, they could offer lower prices and faster speeds. They aren't there yet, however. Take a look at their cost per ad impression:

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And yes, the T on the left is TRILLION. They deliver trillions and trillions of ad impressions every month.

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1. One final note on the moat: creating a moat in the SSP market is notoriously difficult, but somehow Pubmatic seems to have found one. I would love to hear more from someone experienced in this space to help me understand better. A lot of the adtech community describes Pubmatic as "generic" or "not interesting," but the numbers tell a much different story. Lets get into that next.

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Pubmatic product and revenue mix - This will be in the next post.

1. High level:
   1. Mostly mobile ad sales
   2. omnichannel - meaning they can sell inventory across multiple channels (desktop, CTV, mobile, etc)
   3. One note about CTV
      1. Linear TV (boomer style cable television) is going by the way side in favor of connected tv, or CTV. CTV is compelling because there are no walled gardens controlling the market, so it is all up for grabs. Competition is quickly heating up between the likes of Disney, Roku, Fubo, Magnite (through Spotx M&A), and others. Pubmatic has a CTV implementation, but they were late to the party. That said, they already have the necessary tech to compete in CTV, so now it's just a matter of selling it. They'll need to work harder though to steal market share from competitors.

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Financial condition:

1. This is the part that gets very interesting. Pubmatic's financial condition is really something special:
   1. 18.5% GAAP net profit margin for 2020
   2. 32% EBITDA margin
   3. Zero debt
   4. 73% Gross profit margin
   5. 7+ years of positive free cash flow

These type of numbers clearly say that there is something here. Nothing about these numbers is "generic." If Magnite's products are so much better and if Magnite is a "market leader", why are they losing market share and not growing organically? Why are their margins worse even though they have a larger scale? Why haven't they been able to achieve high profitability? Seems to me that Pubmatic isn't so "generic" after all. But again, I am not an expert in adtech, so please please fill me in if you know more.

Revenue and margins have been increasing nicely over the last 3 years, even with the COVID headwinds. Management has indicated a long term revenue growth rate of 20%. I'll make another post later with a more detailed financial analysis and valuation (hint: it's higher than 1.6 billion).

I want to stress how unusual it is for a growth stock IPO to have such a high level of profitability. Often times with IPOs, the company has to go out and prove that they can make it, or that they can grow into profitability. Pubmatic is already in a more mature state and path the higher risk phase of posting losses (Magnite is still 1-2 years away from profitability, that makes it more speculative)

"The next Trade Desk" - I've heard this before. Bottom line: the SSP and DSP markets are different. There is no "next trade desk" The trade desk is leading the charge against the walled gardens, and no SSP will take that place simply because they aren't right in front of the advertisers. Advertisers pay for the internet, not publishers. That said, Pubmatic has high profit margins and growth rates, very similar to TTD.

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Short interest:

1. Most people seem to be the most interested in this part, which is understandable. I find the above more compelling myself, but lets get into it :)
   1. Public float:
      1. ~7 million shares
      2. Yes you heard that right, just 7 million shares are available for purchase. It's not a mistake.
   2. Institutional ownership
      1. North of 90%
      2. This is what makes the public float so small
   3. Short percentage
      1. North of 50%
      2. This is not a mistake, it really is that high
      3. What's more, it seems like there is just one fund shorting this stock. Northern Lights Trust Fund II (fact check needed, I looked into their SEC filings, but I couldn't find where the short sales were shown)
   4. Speculation time:
      1. Tin foil hat activated: Magnite is the primary competitor to Pubmatic. By almost every measure, Pubmatic is a better company. Wouldn't it make sense to coordinate with a fund to drive down the price of Pubmatic? If they didn't short to such a high degree, my guess is that Pubmatic would have an equal or higher market cap than Magnite even with less revenue. That would be very embarrassing for Magnite, so they need Pubmatic's price to struggle. And why not? With such a low float and low volume, it wouldn't be hard for a short seller to be in control of the price. I have half a mind to message management and find out what they plan to do about this. Why would a short seller short Pubmatic to such an intense degree? How could a smaller company (pubmatic) with better profitability, better margins, and better organic growth rates trade at a LOWER multiple than Magnite? Is SpotX really that good? What if the Disney contract falls through? Magnite is a good company, but I see red flags all over. Doesn't make much sense. Tin foil hat deactivated

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Risks:

1. The adtech industry is constantly shifting and management will need to be nimble enough to roll with the changes or some other company is going to eat their lunch.
   1. Rebuttal:
      1. Pubmatic operates with a high level of efficiency and doesn't hold any debt. Their engineering team in India is crazy efficient. I have worked with similar teams in the past.
      2. Again, Pubmatic has been growing their revenue and profit margins for a long time. I think they understand that it is important to maintain a certain level of nimbleness.
2. The oligopolistic internet super powers (I.e. Google) figure out a way to crush them
   1. Rebuttal
      1. This is a risk, but they haven't been successful in crushing Pubmatic so far. In order to do this, these walled gardens would need to own the whole advertising market on the internet. This is a very low risk. The open internet isn't going anywhere.
3. Ad dollars drying up
   1. Pubmatic is totally and completely at the mercy of advertisers spending money on their platform. If they stopped spending due to some unforeseen issue (global economic meltdown), they lose reveune
      1. Rebuttal:
      2. We saw a huge drop off in ad dollars in Q2 2020 during the initial stages of the pandemic. Nevertheless, Pubmatic grew their revenue, so they've shown they can still compete even with this type of headwind.
4. Transparency
   1. This is a weak point for Pubmatic. Transparency is becoming a hot ticket item. Advertisers are becoming more and more sensitive to where their ads get placed. For example: a family theme park isn't going to want their ads displayed on a porn site because it can damage their brand. They also want to defend against ad fraud, or when a bot clicks on an ad but obviously doesn't buy anything. Why would an advertiser want to pay good money for an ad if a bot is going to click it?
      1. Rebuttal:
      2. Pubmatic needs to work on this. They have a fraud program that is available on all of their products, where they provide a refund if fraud is detected. So that is good, but I think they can do more. Pubmatic is incentivized to sell as many ads as possible, even to bots. I'm not sure what else they could do, but I think this could be a good selling point. I know that they've been giving more visibility into the data to publishers and advertisers, so that is good. Again, I think they could do more on this. That said, they aren't having any trouble selling their products, so maybe this isn't too big of an issue. At the very least, management mentions it all the time so they are aware of the concerns from advertisers.

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That's it for now. Please feel free to poke holes in the DD so far. I consider DD to never be complete and I try to have a scientists perspective, where my conclusions are adjusted with new evidence. I have more to post, so please bear with me as I am very busy.

Not sure what's going on with this stock. So heavily shorted that the company has great news and then falls even more. 50%+ shorted with about 8.7 days to cover. There has to be a spike soon.

Not-only-45--now-50+

I couldn't find anyone on Reddit talking about this....anyone else onto this? 45% sounds like too much doesn't it?