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Is This Small-Cap Growth Stock a Buy on Its Disney Deal?
AdTech, or advertising technology, encompasses the software and tools that enhance the management, delivery, and effectiveness of online ads. This multifaceted industry includes demand-side platforms (DSPs), supply-side platforms (SSPs), and data management platforms (DMPs), which optimize ad spending and target the right audiences. With investments in data, automation, and AI surging, the AdTech market is projected to expand at a CAGR of 22.4% by the decade’s end.
In this flourishing landscape, Magnite, Inc. (MGNI) leverages programmatic automation to optimize ad placements for publishers while tapping into the booming programmatic CTV segment, positioning itself for substantial growth as the market evolves.
Recently, Magnite secured a two-year extension with Walt Disney (DIS) for advertising services, which sparked a rally in its stock. Analysts are optimistic, highlighting strong EPS growth potential and a double-digit upside to the mean price target.
Given these promising developments, should investors consider adding this small-cap gem to their portfolios? Let’s take a closer look.
About Magnite Stock
New York-based Magnite, Inc. (MGNI), with a market cap of $1.7 billion, operates an independent sell-side platform that revolutionizes how digital advertising is bought and sold across diverse channels - from desktop and mobile to audio and connected TV (CTV). By seamlessly connecting publishers with advertisers, Magnite not only optimizes ad inventory but also boosts revenue, making it a pivotal player in the ever-evolving landscape of digital advertising.
Shares of this online advertising company have seen a rollercoaster ride lately, dropping 21.7% from July highs of $15.92. MGNI stock took a hit about a month ago when rumors surfaced about Disney potentially ditching Magnite for its Disney Real-Time Ad Exchange (DRAX), causing an almost 11% plunge in a single day.
However, the bigger picture shows outperformance. Over the past 52 weeks, the small-cap stock has rallied 86.5%, and in the last six months, it is up 37.6%, outpacing the S&P 500 Index’s ($SPX)performance over the same time frame.
Priced at 16.72 times forward adjusted earnings and 2.89 times sales, Magnite is trading at a discount compared to its historical averages. With immense growth potential in the ad tech realm, it’s shaping up as an attractive buy.
Magnite’s Q2 Top-Line Beat
Magnite reported its fiscal Q2 earnings results on Aug. 7, sailing past Wall Street’s forecasts on the top line. Its contribution ex-TAC (adjusted revenue) rose 9% year over year to $146.8 million, while adjusted EPS climbed 56% annually to $0.14. With an operating cash flow of $29.6 million and cash reserves of $326.5 million, Magnite is in a strong financial position.
Contribution ex-TAC from CTV rose 12%, while DV+, which covers display and video ads, surged 7% to $83.8 million, underscoring its growing influence in the digital ad landscape.
Magnite beat its Q2 total and CTV top-line guidance. The company’s contribution ex-TAC for CTV surpassed expectations, driven by key partnerships like Netflix (NFLX), which is expanding its programmatic ad offerings this summer with a full rollout expected in 2025. Magnite also boasts wins with top partners like Roku (ROKU), which is accelerating its programmatic CTV shift, and United Airlines (UAL) in the commerce media space. Live sports also remains a strong growth area.
Next week, Magnite is preparing to release its Q3 earnings after the close on Nov. 7. Management projects total contribution ex-TAC between $146 million and $150 million and expects adjusted EBITDA margins to expand by 100 to 150 basis points. Growth in adjusted EBITDA is set for the mid-teens, while free cash flow could see even higher gains.
With positive trends in ad spend and partnerships, the company is confident in maintaining momentum into the back half of 2024, projecting positive net income and EPS for the year on a GAAP basis.
Analysts tracking Magnite project the company’s GAAP EPS to double to $0.04 in Q3. Looking ahead, the company is expected to swing to a GAAP profit of $0.31 per share in fiscal 2024, with projected growth of 61.3% to $0.50 in fiscal 2025.
Magnite Secures 2-Year Ad Services Extension with Disney
Magnite’s partnership with Disney just got a two-year extension, cementing a six-year collaboration. As Disney’s preferred supply-side tech partner, Magnite will help monetize Disney’s vast ad-supported content, spanning 30+ DSPs.
This extended deal opens the door for Magnite to handle one-on-one ad deals via its ClearLine platform, including prime-time live streaming of ESPN’s college football games - a high-value market, with Disney’s playoff contract worth a staggering $1.3 billion. Magnite will also support podcast ads on ESPN and ABC News. With such high-profile content, this expanded relationship gives Magnite a powerful foothold in premium advertising.
What Do Analysts Expect for Magnite Stock?
Magnite has a consensus “Strong Buy” rating overall. Of the 11 analysts covering the stock, eight advise a “Strong Buy,” two recommend a “Moderate Buy,” and one suggests a “Hold.”
The average analyst price target of $17.05 indicates expected upside of 36% from current price levels.
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On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
