Formed from the merger of connected TV ad specialist Telaria and ad-exchange platform the Rubicon Project, Magnite has more than tripled in share price in 2020, with all of these gains coming in the last few months. There has been a renewed wave of enthusiasm from investors in this space and Magnite’s connected TV focus has made it a very enticing prospect for many investors.
We’re going to find out if the hype is justified and if Magnite stock is a buy right now.
What does Magnite do?
Magnite is an omnichannel sell-side programmatic advertising platform. The company is focused on the sell-side rather than the buy-side, meaning that it works with publishers, streamers, and websites to sell their advertising space.
Think of banner ads, pop-ups, and ad-breaks on your streaming network. For someone to advertise there, they must be able to actually purchase the space from the publisher to do so, this is where Magnite comes in. Through its programmatic advertising technology, it can get the best price for its network of publishers for its available ad-space. The most well-known buy-side equivalent would be The Trade Desk, and we talked about the comparisons of the two companies here.
The Bull Case for Magnite
There is a lot to like about Magnite. It has relationships with some of the big names in the advertising space — such as The Trade Desk, Disney, and Samsung — it’s connected TV revenue is growing at a rate of 50%, and it’s riding the tailwind of an ad spend shift away from traditional digital channels thanks to one very big announcement from a little company called Apple.
When the iPhone-maker announced they would be asking customers to opt-in to IDFA (Identifier for Advertisers) which allows apps to track their movements online, it sent shockwaves around the industry. With the shift from an opt-out to an opt-in system, it is expected that the big ad tech companies will start to lose valuable tracking data for hundreds of millions of users. Thankfully for Magnite, connected TV advertising is not reliant on cookies or IDFA to target customers, and as such a lot of this ad spend will be redirected to it as a result.
On top of this, this year is likely to see even more antitrust litigation against the duopoly of online advertising of Facebook and Google. This could mean an opportunity for smaller, independent advertising companies like Magnite.
The Bear Case for Magnite
As glaringly obvious as the potential of this business is, they still must actually execute. This means that we need to see evidence that the merger has been implemented successfully, the newly formed company is achieving synergies, and it is ready to capitalize on the shift in the industry. The next few quarterly reports will go a long way to telling us if Magnite is a company for the future as it most definitely still has to prove itself worthy of its most recent run-up.
There is also the little matter of competition. If you haven’t noticed, there are some pretty big names in advertising. Giants like Facebook and Google, and to a lesser extent Amazon, have divvied up the digital advertising market amongst themselves for quite some time now, and they won’t relinquish their market share without a fight. Although Magnite may not be in the big players’ crosshairs right now, if it sees significant growth, especially in connected TV, it could be conceivable for the tech giants to encroach on its territory.
Lastly, Magnite has been on a meteoric rise in the past three months, which will repel many investors. There will be heightened expectations for the company to go above and beyond its targets for the next few quarterly reports in order to maintain this growth.
Should you buy Magnite stock?
Whether or not you are interested in a company like Magnite all comes down to who you are as an investor. This is a stock with boatloads of potential, however, it still needs to prove it can execute. All the tailwinds are pointing in the right direction for Magnite and it’s in an enviable position to capitalize on the influx of money set to flow into connected TV advertising.
Those more prone to risky bets will be inclined to book their ticket now, while the more risk averse may wait on the sidelines for a couple of quarters. One thing we can expect from Magnite in 2021 is a lot of volatility. Although we can see why it did so, a stock tripling in value in three months isn’t exactly sustainable and if you are prone to being a bit skittish about big dips this may not be the company for you. That being said, there is a clear risk-reward pay-off here for what is a very exciting prospect.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above.
Content Manager at MyWallSt
Michael's first and favorite stock is Square, which he sees becoming a massive player in the payments industry and a leader in the war on cash.