Shares of programmatic advertising technology (adtech) company PubMatic (NASDAQ: PUBM) were crushed on Friday after the company reported financial results for the second quarter of 2024. As of 11 a.m. ET, PubMatic stock was down a painful 30%.

Why the market disliked PubMatic's quarter

In my opinion, Q2 results weren't so bad for PubMatic. But allow me to acknowledge why investors are dumping this stock today. Management had guided for Q2 revenue of at least $69 million but it only generated revenue of $67.3 million. The company consequently lowered its full-year financial guidance. Previously, it thought it would have at least $296 million in full-year revenue. Now it thinks that $292 million will be a best-case scenario.

Here's what's happened since its first-quarter report: One of PubMatic's customers made changes to its process. Management estimates that this caused it to miss out on $2 million in Q2 revenue and it will miss out on another $3 million before the year is done.

PubMatic is a sell-side adtech platform. For these players, customer concentration is usually an acute risk -- there are only so many publishers to work with, meaning most customers are important. Therefore, when something happens with a single customer it can have an outsize impact, as evidenced with PubMatic's Q2 results. This is why the stock is down.

A big overreaction?

PubMatic's quarter wasn't perfect, but I'm surprised by the 30% drop. The company's revenue was up 6% year over year despite the aforementioned headwind, it earned $2 million in Q2 net income, and it had free cash flow of almost $7 million. Moreover, it's a debt-free company with nearly $166 million in cash and short-term investments.

PubMatic is on strong financial footing to push through challenges. Moreover, the stock trades at less than 3 times its sales, which is a reasonable price for a growing business in the promising programmatic adtech space. Therefore, for investors comfortable with the customer concentration risk, PubMatic is a stock to take a closer look at.

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