Fortunately, there are many smaller, less well-known companies that still have attractive prices and have a great future. PubMatic (PUBM 0.78%)And indava (case, invitation 4.28%)And Social sprout (SPT 0.91%) They are all compelling investments. These companies may be under the radar, but they are worth a closer look.
The most famous advertising companies are Trade office, the buy-side leader in the programmatic advertising space. PubMatic is trying to become a leader on the sell side of the advertising ecosystem. While the Trade Desk works to help brands find places to advertise, PubMatic works on the other end of the equation to help match those brands with businesses that have ad space to sell.
While revenue growth has been slowing lately, there have been some positive signs. Ad impressions, which is the number of digital ads a user was shown, increased 42% year-over-year to 46.5 trillion in Q1 2023. This is on top of a 76% growth from Q1 2021 to Q1 2022 .
With the exception of the first quarter of 2023, when the company reported a net loss of $5.9 million, PubMatic has typically been profitable and cash-generating. The company generated $5.3 million in free cash flow in the first quarter of 2023, and this amount should increase in the future as management expects to reduce its capital expenditures by 60% during this year.
Endava is a consulting firm that helps companies modernize their technology to stay agile and relevant. While a startup company may be digital and cloud native, an established company will have legacy systems that need to be updated over time. This is where Endava can help.
Endava has grown its top line rapidly over the past several years. From fiscal year 2018 through 2022, Endava grew its revenue at a compound annual growth rate (CAGR) of 32%. I did this by acquiring new customers, but also by retaining customers year after year. During the same period, approximately 90% of the revenue came from customers who were also with the company in the previous year.
The company is also growing its largest clientele at a rapid pace. At the end of the most recent reported quarter, Q3 2023, Endava had 155 customers on revenue of £1m, which is a 31% year-on-year increase. At the same time, Endava is diversifying its customer base. The company’s 10 largest customers accounted for 33% of total revenue, down from 35% in the prior year quarter, and 42% at the end of fiscal 2018.
Endava is seeking a market opportunity that it believes will reach $3.4 trillion by 2026. With just $946 million in revenue 12 months in, there’s still a long path to growth.
Any brand that wants to maintain a connection with the youth must have a presence on all social media platforms. Sprout Social helps businesses manage their social media effectively in one place and has been successful in acquiring more customers over time.
Sprout has more than 30,000 customers in over 100 countries, and last quarter reported revenue growth of 31%. This strong growth should come as no surprise, as revenue growth for the previous three full years has been above 35%.
Since the first quarter of 2020, Sprout’s annual recurring revenue (ARR) has grown at a compound annual growth rate of 35%. Equally impressive is the growth in Annual Recurring Revenue (ARR) for its larger customers. In the first quarter of 2023, Sprout reported that the number of customers with an ARR of $10,000 or more increased 33%, while the number of customers with an ARR of $50,000 or more increased 46%. These strong results have also increased guidance for the remainder of 2023. The company now expects internal rate of return to grow at a rate of more than 33% year-over-year.
One thing investors should watch is Sprout’s move toward profitability. The company is guided by non-GAAP earnings per share of between $0.07 and $0.08 for 2023. That would be an improvement over the non-GAAP 2022 net loss of $0.05.
Jeff Santoro has positions at Endava Plc, PubMatic, Sprout Social and The Trade Desk. The Motley Fool has and recommends positions at Endava Plc, PubMatic, Sprout Social, and The Trade Desk. The Motley Fool has a disclosure policy.