We came across a bullish thesis on Magnite Inc (MGNI) on ValueInvestorsClub by Thor25. In this article, we will summarize the bulls’ thesis on MGNI. MGNI’s stock was trading at $15.24 when this thesis was published, vs. a closing price of $16.16 on November 20.
MGNI and Trade Desk (TTD) are two key players in the digital advertising environment. MGNI, the largest independent supply-side platform (SSP) with $600 million in revenue, and TTD, the dominant demand-side platform (DSP) at $2.4 billion, are both secular growth businesses. However, their disparities suggest a strong possibility for a revaluation of MGNI. Although TTD has soared through exemplary implementation and organic development, MGNI’s experience, formed by industry disintegration and acquisition, leaves it well-positioned for the future.
MGNI’s expertise is in connected TV (CTV), the fastest-growing segment of digital advertising. CTV generates nearly 50% of MGNI’s revenue and is expected to grow at around 15% per year, faster than overall digital display ads. An important event for MGNI was when it was selected as the partner to power the Netflix ad-supported tier sale. This shift is believed to drive billions in ad spend by 2027 to exonerate MGNI’s platform assets. In contrast, TTD has issues as its DSP take rates decline and expansion from newly gained market share is more difficult.
In addition, privacy changes are also tilting the playing field by moving from third-party to first-party data. The acquisition of first-party audiences gives SSPs like MGNI higher value while potentially diminishing DSPs. The fact that MGNI can become a very close partner to publishers makes it an essential value-added player. However, TTD’s efforts to bypass SSPs like OpenPath have not gained much traction, which makes the position of MGNI sensible in the value chain.
As for valuation, MGNI is cheaper with a multiple of about 11x 2025 EBITDA, while TTD is around 40x. This means that there is still much room for several expansions, and according to the projection, the EBITDA of the company in the year 2025 will amount to slightly over $ 265 million. This gap could be reduced as the MGNI business grows and more investors look for opportunities for the company to grow.
Finally, more antitrust cases against Google could alter the SSP market, which would benefit MGNI. Since MGNI has strong CTV leadership, deeper publisher relationships, and is significantly cheaper to invest in than TTD, it is a no-brainer for investors seeking to get a taste of digital advertising.
While we acknowledge the potential of MGNI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MGNI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: Stavros Tousios has no positions in the aforementioned stocks.
