The digital advertising landscape is expanding rapidly as consumers spend more time online. Brands are fiercely competing for attention across websites, social media platforms, and mobile apps. This competition has driven a surge in digital ad spending, with the global market projected to exceed $1.37 trillion by 2033, growing at a CAGR of 9.6% from 2024 to 2033.

Should investors seeking a slice of this growing pie consider investing in Magnite, Inc. (MGNI)? Valued at a $1.89 billion market cap, the company operates a prominent independent sell-side advertising platform, connecting publishers with advertisers. It provides access to premium ad spaces across the web, mobile apps, Connected TV (CTV), and audio.

MGNI exceeded Wall Street’s expectations in the first quarter with strong top and bottom-line results. Contribution ex-TAC for CTV significantly surpassed the high end of their guidance range, reaching $130.60 million, up 12% year-over-year. Moreover, their CTV segment saw an 18% year-over-year rise to $54.89 million, while DV+ grew 9% to $75.70 million.

Michael G. Barrett, President and CEO of MGNI, commented, “We finished the quarter with strong CTV upside in live sports, related to March Madness, as well as strong continued growth in ad serving, both contributing to share gains. DV+ also posted strong results with growth of 9%.”

“A positive ad spend environment to start 2024, plus our share gains, have led to a great start to the year, and we remain optimistic this momentum will continue. There is a clear trend to consolidation in our space, and we believe the strongest, technically superior, scaled players that deliver the best monetization, will capture market share gains,” he added.

Shares of MGNI have gained 81.1% over the past nine months and 44.9% year-to-date, closing the last trading session at $13.53. However, the stock has dipped marginally over the past month.

Let’s look at factors that could influence MGNI’s performance in the upcoming months.

Recent Strategic Partnership

On June 18, the company announced an expanded partnership with Spectrum Reach, the advertising sales arm of Charter Communications, Inc. This partnership enhances programmatic ad-buying access across Spectrum Reach’s vast library of premium linear and streaming TV inventory.

The agreement extends MGNI’s full programmatic capabilities to Spectrum’s latest video delivery technology, allowing ad buyers to bid on individual impressions in real time. Additionally, ad buyers will benefit from centralized planning and frequency management across linear and digital platforms.

In March, MGNI and Mediaocean announced an exclusive partnership to enhance automation and supply path efficiency for connected TV (CTV) and online video (OLV) advertising. This partnership allows Mediaocean’s Prisma buyers to directly activate streaming campaigns with premium video sellers through MGNI’s ClearLine solution. It builds on their 2023 deal, which integrated Magnite’s streaming inventory into Mediaocean’s ad infrastructure for local TV buyers.

Mixed Financials

For the first quarter that ended March 31, 2024, MGNI’s revenue increased 14.7% year-over-year to $149.32 million, beating the analysts’ revenue estimate of $124.16 million. Its adjusted EBITDA rose 7.2% from the year-ago value to $26.03 million. Its non-GAAP net income grew 38.8% from the previous year’s quarter to $7.98 million. Furthermore, the company’s adjusted EPS came in at $0.05, up 25% year-over-year.

However, its loss from operations for the quarter was $13.83 million. The company’s cash outflow from operating activities amounted to $60.41 million, up 95.5% from $30.89 million in the year-ago period. Also, as of March 31, 2024, MTDR’s cash and cash equivalents decreased to $252.83 million, compared to $326.22 million as of December 31, 2023.

Favorable Analyst Expectations

Analysts expect MGNI’s revenue and EPS for the second quarter (ended June 2024) to grow 6.9% and 72.1% year-over-year to $144.10 million and $0.15, respectively. Moreover, the company surpassed consensus EPS and revenue estimates in each of the trailing four quarters, which is remarkable.

For the fiscal year ending December 2024, Street expects MGNI’s revenue to increase 10.6% from the prior year to $607.77 million. The company is expected to post an earnings per share of $0.82, indicating a 52.3% year-over-year growth.

In addition, the company’s revenue and EPS for the fiscal year 2025 are expected to increase 10.8% and 13.6% year-over-year to $673.57 million and $0.93, respectively.

Mixed Valuation

In terms of forward non-GAAP PEG, MGNI is trading at 0.44x, 68.3% lower than the industry average of 1.37x.

However, the stock’s forward EV/Sales and EV/EBITDA multiples of 3.73 and 11.48 are 98.1% and 50.5% above the respective industry averages of 1.88 and 7.63. Likewise, its forward non-GAAP P/E ratio of 16.45x is 29.9% higher than the industry average of 12.66x.

Mixed Profitability

MGNI’s trailing-12-month levered FCF margin of 29.61% is 246.1% higher than the 8.56% industry average. Also, the stock’s trailing-12-month Capex/Sales of 4.42% is 22% higher than the industry average of 3.62%.

However, its trailing-12-month EBITDA margin of 11.89% is 36.3% lower than the industry average of 18.65%. MGNI’s trailing-12-month net income margin and ROCE of negative 12.24% and negative 11.17% compares to the respective industry averages of 2.87% and 3.56%.

POWR Ratings Reflect Uncertainty

MGNI’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. MGNI has earned a B grade for Sentiment, consistent with optimistic analyst estimates.

However, the stock has a C grade for Value and Quality, in sync with its mixed valuation and profit margins. Also, MGNI has a D grade for Stability, justified by its five-year beta of 2.34.

Within the B-rated Advertising industry, MGNI is ranked #8 out of 16 stocks.

Beyond what I have stated above, we have also given MGNI grades for Growth and Momentum. Get all MGNI ratings here.

Bottom Line

MGNI showed resilience in the first quarter of 2024, surpassing revenue expectations and demonstrating growth in adjusted EBITDA and non-GAAP net income. This performance underscores its solid position in the digital advertising space, especially with its strategic partnerships aimed at enhancing programmatic ad-buying efficiency.

However, the company reported a loss from operations and a substantial increase in cash outflow from operating activities compared to the previous year, reflecting challenges in managing costs and cash flow.

While Magnite’s initiatives to enhance programmatic ad-buying capabilities and expand into connected TV are promising, the stock’s high volatility and current valuation suggest caution for potential investors. Given these mixed signals, waiting for a better entry point in this stock seems prudent.

How Does Magnite, Inc. (MGNI) Stack Up Against Its Peers?

While MGNI has an overall grade of C, equating to a Neutral rating, you may check out these A (Strong Buy) rated stocks within the Advertising industry: Nexxen International Ltd. (NEXN), Criteo S.A. (CRTO), and Taboola.com Ltd. (TBLA).

To explore more A and B-rated advertising stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

MGNI shares closed at $13.53 on Friday, down $-0.09 (-0.66%). Year-to-date, MGNI has gained 44.86%, versus a 17.43% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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