Although it may not seem like it, now is the best time to buy quality carriers. Some of the battered stocks are still operating at the fundamental level, which could allow their stock prices to rise once the overwhelming fear of investing has dissipated. Both free market (milli 9.96%) And PubMatic (PUBM 16.16%) They are continuing to implement, and their future looks bright, despite the macroeconomic uncertainty. Investors are afraid of owning stocks at the moment, which could create a huge buying opportunity for these two companies.
1. Free market
The Latin American e-commerce and payments giant was recently crushed, dropping nearly 64% from its all-time high in early 2021. This lowered its valuation to 4.5 times sales, the company’s lowest valuation since 2009. However, The company’s core performance looks stronger than ever. In the first quarter of 2022 – reported May 5, 2022 – the company’s total revenue was up 67% year-over-year on a foreign currency-neutral basis to $2.2 billion. The company has also seen increased adoption from Latin Americans: the company’s unique active users jumped 16% year-over-year to 81 million users.
The company’s MercadoEnvios logistics service has seen improvements in delivery speeds, with 54% of MercadoLibre products being delivered the same day or next day. Nearly 80% of the volumes were delivered by Envios within 48 hours, an increase of five percentage points year over year.
Meanwhile, payment service MercadoPago has also made great strides, with more customers using Pago to purchase things at places other than MercadoLibre’s own locations. Total out-of-platform payment volume increased 139% year over year and represented 68% of total payment volume in the first quarter. This signifies that Pago has become well established in the Latin American community, which is a major achievement for the company’s long-term future.
Because of this dominance across the region, MercadoLibre is starting to become profitable. In the first quarter, the company reported net income of $65 million, which jumped from a loss of $34 million in the same period last year. The company is still free of negative cash flow, but this is because the company is seeing a significant increase in its credit business. Mercado Credito saw its credit portfolio jump 319% year over year to $2.4 billion in the first quarter. But more importantly, its non-performing loans as a percentage of its total loan portfolio increased just 1.6 percentage points year-over-year to 27.6% in the first quarter — which means its bad loans are growing much slower than its total loan portfolio.
While these loans add some risk to the business, the company appears to be managing it well. Other than that, it appears to run on all cylinders, and given its very low price, the MercadoLibre seems undervalued.
PubMatic operates on the sell side of the ad technology (adtech) industry, helping those with ad inventory find the best bid from advertisers. PubMatic offers ad space to thousands of potential advertisers, boosting the chances of finding the highest bid for that ad space.
The digital advertising market is growing rapidly due to the benefits it provides to advertisers compared to traditional advertising. Advertisers can target specific consumer demographics with digital advertising, which they cannot do with billboards, for example. As a result, global spending on digital advertising is expected to rise from $514 billion in 2022 to $627 billion in 2024.
While PubMatic isn’t the industry leader, it’s one of the best dogs in the space with first-quarter revenue growing 25% year-over-year to $55 million. Relatively speaking, the biggest player on the sell side, magnet (MGNI 13.51%), reported Q1 revenue of $118 million. However, this only expanded by 15% on a pro forma basis. Magnite is a chain-acquisition company, which means that the majority of its revenue expansion comes from the companies that buy it. With that said, the most comparable way to monitor core revenue increases between businesses is by using a Magnite seed number. While PubMatic is roughly half the size of Magnite in terms of revenue, it’s starting to catch up.
PubMatic expects this success to continue, with revenue guidance expected of 25% year-over-year for the full year. In addition, the company expects its profitability to improve. In the first quarter, the company’s adjusted EBITDA margin was 31%, but PubMatic expects this to rise to 36% for the full year. This shows that PubMatic is taking advantage of this rapid expansion of digital advertising in both the top and bottom lines. While a slowdown in digital advertising—perhaps due to a potential recession—in the short term may cause the company to miss this view, the long-term story of advertising appears to suggest that digital advertising has a bright future.
With 22x earnings, PubMatic looks like a steal today compared to Magnite, which trades at a whopping 897x earnings. The company is riding the tailwinds of a major industry and is expected to gain market share; It’s seeing 25% growth at the top streak this year, though total market-wide digital advertising spending is only expected to grow by 17% in 2022. All of this combines for a profitable long-term investment, which is why I believe that PubMatic is a company worth owning today.