Thesis - Magnite provides a sell-side platform for digital publishers to sell ad inventory. It is no secret that over the last 10 years advertising has shifted from traditional channels (TV, magazines, newspapers, billboards, radio) to digital channels. Digital marketing benefits from large and growing inventories, as well as better attribution (tracking) and transparency of data. Magnite helps publishers i.e. companies that own the digital properties, to optimise how they sell their ad inventory. Think of Magnite as a revenue maximisation tool for them, which calculates the right price to sell at and customer to sell to. Magnite has had a turbulent history. It is the result of a merger between two companies, Rubicon Project (focused on programmatic ads) and Telaria (focused on connected TV), but the story has recently caught investors attention. By bringing together these two companies, they have created a unified sell-side experience and with connected TV increasing in popularity, they have unlocked an additional growth engine. The stock has tripled in the last 3 months, helped by buoyant analyst price targets. However, it is still only a $3.4b company, so could yet have room to grow.
Financials & Performance - In their last quarterly report, Magnite announced revenue growth of 12% YoY ($61m total). The connected TV business line, which represents just 18% of revenues, grew 51% YoY, providing the bright spark. Operationally, Magnite has an exclusive deal with Disney to serve the Hulu connected TV ads programmatically. Given Disney have recently restructured their business around streaming efforts, this bodes well. Magnite is still not profitable - making a $10.5m loss. But losses were smaller than analysts were expecting and predicted to shrink further.
Risks - The story of unified sell-side platform has a lot of potential. But Magnite is still a small company and much of the execution is ahead of it. In particular, many investors are excited by Magnite because of its comparisons to The Trade Desk. The Trade Desk creates a software platform that allows brands to manage their ad buying programatically. They don’t own any inventory themselves, but are an optimisation platform on top of inventory providers helping brands work out which ads are most effective (display vs mobile? Audio vs video?) In some ways, Magnite and The Trade Desk are two sides of the same coin. Given that The Trade Desk has been one of the best performers on the stock market since going public (up > 25x), naturally investors are excited. However, two business rarely follow the same path and it’s not prudent to assume TTDs success will guarantee Magnite’s performance.