Pubmatic vs. Criteo: Which Ad-Tech Stock is a Better Buy?

Headquartered in Paris, France, Criteo S.A. (CRTO) is a technology company that provides marketing and monetization services on the open Internet. In addition, it offers real-time access to advertising inventory through its publisher partners. In comparison, PubMatic, Inc. (PUBM) provides a cloud infrastructure platform that enables real-time programmatic advertising transactions for Internet content creators and advertisers worldwide. Its platform supports an array of ad formats and digital device types.

Advertisement technology or ad-tech companies help advertisers effectively deliver ads to their target market by using tech and software systems. While Alphabet (GOOGL) and Apple's (AAPL) discussions about banning third-party cookies, in response to laws such as the General Data Protection Regulations and the California Consumer Privacy Act, could affect the near-term growth of the ad-tech industry, many ad-tech companies have been shifting away from the use of cookies, making their ongoing boom period sustainable. Therefore, both CRTO and PUBM should benefit.

PUBM shares have gained 62.6% in price over the past month, while CRTO has returned 14.8%. However, CRTO’s 19.6% gains over the past six months are significantly higher than PUBM’s 3.9% returns. CRTO is the clear winner with 105.3% gains versus PUBM’s 40.9% returns in terms of year-to-date performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On August 4, 2021, CRTO announced that Best Buy Co., Inc. (BBY) had signed on to the company's retail media ecosystem and platform. The addition of Best Buy to the platform should provide ease of buying for advertisers while enhancing the seamless shopping experience for Best Buy customers in the U.S. and Canada.

On September 14, 2021, PUBM and Nielsen Holdings plc (NLSN) announced that Nielsen’s audience data is now available through PubMatic’s Audience Encore, permitting advertisers to buy premium omnichannel inventory layered with quality data for precision targeting and better performance. This collaboration expands on PUBM’s strategy to offer advertisers a holistic, privacy forward approach to leveraging premium audience data for effective targeting in the future without third-party cookies.

Recent Financial Results

CRTO’s revenue increased 8% year-over-year to $509 million for its fiscal third quarter, ended September 30, 2021. The company’s adjusted EBITDA grew 38% year-over-year to $68 million, while its net income came in at $24 million, representing a 358% year-over-year increase. Also, its adjusted EPS came in at $0.64, up 60% year-over-year.

PUBM’s revenues increased 54% year-over-year to $58.09 million for the fiscal third quarter ended September 30, 2021. The company’s adjusted EBITDA grew 81.2% year-over-year to $24.26 million, while its net income came in at $13.53 million, representing a 117.1% year-over-year increase. Also, its EPS came in at $0.24, up 140% year-over-year.

Expected Financial Performance

Analysts expect CRTO’s revenue to increase 7.8% for the quarter ending December 31, 2021, and 10.5% in its fiscal 2022. The company’s EPS is expected to grow 4.1% for the quarter ending December 31, 2021, and 10.9% in its fiscal 2022.

In comparison,  PUBM’s revenue is expected to increase 31.8% for the quarter ending December 31, 2021, and 24.9% in its fiscal 2022. Its EPS is expected to decline 47.1% for the quarter ending December 31, 2021 but grow 1.5% in fiscal 2022.

Profitability

CRTO’s $2.26 billion trailing-12-month revenue is significantly higher than PUBM’s $207.59 million. However, PUBM is more profitable, with gross profit and net income margins of 74.54% and 22.73%, respectively, which compare to CRTO’s 33.42% and 4.68%.

Furthermore, PUBM’s ROE, ROA, and ROTC of 28.69%, 9.76%, and 20.15%, respectively, are higher than CRTO’s 9.90%, 6.62%, and 9.16%.

Valuation

In terms of forward non-GAAP P/E, PUBM is currently trading at 48.18x, which is 224.7% higher than CRTO’s 14.84x. And  PUBM’s 8.31x forward EV/S ratio is 253.6% higher than CRTO’s 2.35x.

So, CRTO is relatively affordable here.

POWR Ratings

CRTO has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. In contrast, PUBM has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

CRTO has a B grade for Value, which is consistent with its 6.84x forward EV/EBITDA, which is 30.7% lower than the 9.87x industry average. However, PUBM has a C grade for Value, which is in sync with its 21.71x forward EV/EBITDA, which is 120% higher than the 9.87x industry average.

In addition, CRTO has a C grade for Stability, which is consistent with its 0.92 beta In comparison, PUBM has a D grade for Stability, in sync with its 1.97 beta.

Of the 37 stocks in the Internet - Services industry, CRTO is ranked #4. However, PUBM is ranked #81 of 162 stocks in the Software - Application industry.

Beyond what I have stated above, we have also rated the stocks for Growth, Momentum, Quality, and Sentiment. Click here to view all the CRTO ratings. Also, get all the PUBM ratings here.

The Winner

The ad-tech industry is expected to grow exponentially with the increasing drive by consumers towards the digital world. While both CRTO and PUBM are expected to gain, we think it is better to bet on CRTO now because of its lower valuation and better stability.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Internet - Services industry here. Also, click here to access all the top-rated stocks in the Software - Application industry.

Click here to check out our Software Industry Report for 2021

CRTO shares were trading at $41.50 per share on Tuesday afternoon, down $0.63 (-1.50%). Year-to-date, CRTO has gained 102.34%, versus a 26.90% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

More...