8. Magnite, Inc. (NASDAQ:MGNI)
Market Capitalization: $ 1.853 Billion
Analyst Upside Potential: 54.37%
Number of Hedge Fund Holders: 25
Magnite, Inc. (NASDAQ:MGNI) is an independent sell-side advertising company that specializes in digital advertising technology solutions. It primarily focuses on automating the buying and selling of digital advertising inventory. On March 21, Omar Dessouky, an analyst from Bank of America Securities, maintained the Buy rating on the stock while keeping the price target at $20. It is one of the best small cap stocks to buy before they explode.
Dessouky noted several strengths and opportunities for the company, particularly in the growing Connected TV advertising market. The analyst highlighted that the company is well-positioned to capitalize on the increasing prevalence of programmatic advertising in the CTV segment, which is a high-growth segment. Its SpringServe platform integrates ad serving with a programmatic layer, offering unique capabilities that are difficult for publishers to replicate internally, thereby reducing the risk of disintermediation. Moreover, the company has achieved significant penetration among major publishers, which positions it to grow revenues in line with publisher ad spend.
During the fiscal fourth quarter of 2024 as well, Magnite, Inc. (NASDAQ:MGNI) pointed toward its focus on expanding its programmatic CTV platform, leveraging partnerships with major players like Netflix, Disney, Roku, LG, and others. It also introduced AI-powered tools to optimize operations and enhance client-facing features. These include generative AI solutions for audience targeting and yield optimization engines for header bidding. Its quarterly revenue reached $668.2 million after growing 8% year-over-year driven primarily by CTV growth.
Crossroads Capital stated the following regarding Magnite, Inc. (NASDAQ:MGNI) in its Q4 2024 investor letter:
“Magnite, Inc. (NASDAQ:MGNI) is the largest independent programmatic Sell-Side Platform (SSP), an entity that provides technology solutions to automate the purchase and sale of digital advertising inventory on behalf of publishers. The company arose from the merger of The Rubicon Project and Telaria in 2020. It then acquired a CTV competitor SpotX in early 2021 to become the third-biggest CTV SSP, after Comcast’s Freewheel and the Darth Vader of the AdTech world, Google. Critically, Magnite stands today as the key enabler of Connected TV advertising for streaming platforms, an increasingly crucial revenue source for media parent companies around the world.
The company’s contract win with Netflix is proof of its differentiation in the space, and was something we expected after hearing back in early 2023 that Microsoft’s Xandr ad tech stack wasn’t capable of true CTV ad delivery. The company has impressive incremental EBITDA margins (75%+), and after spending the last few years consolidating its acquisitions, is in a place to capitalize on growth opportunities, generating cash flow far in excess of current market expectations.
Nonetheless, the company trades on a single-digit multiple of this year’s estimated EBITDA, with minimal credit applied to Netflix onboarding programmatic advertising. That’s strange, if only because the Netflix ad tier is likely to deliver $6 billion in ad spend next year, and half of that may go through Magnite with low-single-digit take rates (3.5 to 5.0%). Should this occur with incremental margins they have shown in the past, the company could see EBITDA rise by over $70 million next year, implying 30%+ growth from Netflix alone. Better yet, with the success of Netflix’s programmatic endeavors, other media customers may accelerate adoption of the same type of programmatic infrastructure/services with MGNI that were previously just tertiary monetization activities…” (Click here to read the full text)
