In this article, we will look at the 10 Worst Advertising Stocks To Buy According to Short Sellers. Let’s look at where Magnite, Inc. (MGNI) stands against other worst advertising stocks.
Overview of the Global Advertising Sector
Advertising agencies have profited from per capita disposable income, increasing consumer spending, and corporate profit in the past few years. Although advertising expenditure fell after the outbreak of the COVID-19 pandemic, industry revenue in 2020 rose with companies demanding creative services for their pandemic-focused promotional campaigns. Corporate profit bounced back after 2020, allowing agencies to monetize the exponential release of pent-up demand as companies and businesses scrambled to target a specific customer base: one with increasing disposable income.
According to estimates from IBISWorld, industry-wide revenue in the advertising sector has been growing at a compound annual growth rate of 2.7% over the past five years. It is expected to reach $70.1 billion by 2024, increasing by 1.9%. Profit is also anticipated to grow by 6.6%. According to a report by Mordor Intelligence, the online advertising market is valued at $257.97 billion as of 2024. It is expected to increase to $431.76 billion by 2029, growing at a compound annual growth rate of 10.97% in the forecast period.
North America is the largest market in the sector and is also the fastest-growing in the world. The increasing use of digital devices and social media has caused an exponential boom in the online advertisement sector, becoming a critical component of marketing strategies for companies across the globe.
Spending in the Advertising Sector
Spending in the advertising industry, which determines the fate of publishers, is also determined by the state of the economy, consumer confidence, and advertisers’ outlook. Advertising giants have talked during earnings calls that while the advertising market is not at its best right now, it does appear to be recovering.
This recovery is taking place in areas such as food and technology, which joins strong performance in healthcare, pharmaceuticals, and beauty care. Companies that are active in programmatic advertising (data-driven user targeting through ads), have also seen programmatic revenues surge while broader advertising revenue decline.
US Elections and the Advertising Industry
US political campaigns take over the advertising landscape during an election season, setting the stage for a number of challenges for non-political advertisers. As such challenges only seem to grow with each election cycle, 2024 is no exception. Hotly contested Senate battles and a divisive Presidential race landscape are some of the factors driving unprecedented political ad spend. Estimates show that this year’s political ad spending is expected to stand between $10.2 billion and $12 billion. This translates to a 13%-30% increase from the 2019-2020 election cycle ad spend.
This creates a pressing need for advertising and marketing leaders from outside the political landscape to find creative ways to navigate the politics-saturated market and chalk out ways to make the most of their spending in a period of localized inventory scarcity and high demand. Advancements in generative AI are also likely to create a landscape of misinformation and disinformation, especially on social media. This brings an additional responsibility to advertisers to safeguard their brands and clients from the potential pitfalls of such AI-generated misinformation and harmful political content.
According to a report by Insider Intelligence, TV media is again expected to take the largest chunk of America’s political ad spending. It is anticipated to rise 7.9%, accounting for 71.9% of all spending. In addition, advertising costs on TV and other mediums are also expected to rise with the presidential campaign reaching its full swing. These trends will likely affect all kinds of advertisers, as TV, radio, and out-of-home advertising is anticipated to be rife with election advertising. This would make getting non-political messages across considerably harder, as there is expected to be considerable noise in the market between August and November.
Our Methodology
To list the 10 Worst Advertising Stocks to Buy According to Short Sellers, we used a Finviz screener to filter out stocks catering to the advertising industry. Next, we narrowed our list of stocks by selecting the ones having high short interest. Finally, the stocks were ranked in ascending order of their short interest. We also mentioned the hedge fund sentiment for each stock.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Worst Advertising Stocks To Buy According to Short Sellers
Magnite, Inc. (NASDAQ:MGNI)
Short Interest: 6.20%
Number of Hedge Fund Holders: 25
Magnite (NASDAQ:MGNI) is an independent sell-side adtech company that provides tech solutions for the automation of the sale and purchase of digital advertising inventory. The company’s platform boasts services and applications for publishers owning and operating connected television (CTV) channels, websites, applications, and other digital media properties to monetize and manage their inventory. Apart from that, it also offers features to sellers of digital advertising inventory and buyers such as agencies, advertisers, agency trading desks, and demand side platforms (DSPs) looking to buy digital advertising inventory.
Magnite (NASDAQ:MGNI) manages a transparent marketplace that connects sellers and buyers, facilitating automated transaction execution at scale and intelligent decision-making. Its ad server and streaming sell-side advertising platform (SSP) offers CTV sellers an all-encompassing solution for yield monetization and management and streamlining workflow across direct-sold and programmatic video inventory.
The company has strong financials and exceeded its top-line financial guidance in Q2 fiscal 2024. It holds a competitive edge in the CTV market due to its selection as Netflix’s programmatic FSP partner. This collaboration has brought significant momentum to Magnite (NASDAQ:MGNI), making it appealing to new investors and partners alike. Its competitive moat stems from continuous investments in various capabilities and features over the years. Key drivers of its strong CTV performance were the growing programmatic adoption by some of the largest industry players, strong overall ad spend growth, and ad serving strength. Its ad spend grew more than 20% in Q2.
Besides its Netflix win, Magnite (NASDAQ:MGNI) secured two additional highly profitable partnerships: United Airlines and Roku. The company recently announced that it is set to act as the centralized ad platform for in-flight entertainment in United Airlines, showing its continued growth in the commerce media space and programmatic advertising arena.
In addition, Magnite (NASDAQ:MGNI) also announced an expansion of its seven-year partnership with Roku in support of powering the new Roku Exchange. Integrating with Magnite (NASDAQ:MGNI) allows the Roku Exchange to connect to the programmatic ecosystem. In addition to connecting the exchange to third-party buyers, Magnite (NASDAQ:MGNI) provides a demand facilitation team and incremental advertising opportunities through its agency and clear-line marketplace solutions.
Magnite’s (NASDAQ:MGNI) total revenue grew 7% to $163 million in Q2 2024 as compared to Q2 2023. 25 hedge funds hold stakes in the stock as of Q2 2024. Choice Equities Fund stated the following regarding Magnite, Inc. (NASDAQ:MGNI) in its Q2 2024 investor letter:
“Magnite, Inc. (NASDAQ:MGNI) – Portfolio holding Magnite is worth a deeper dive given the impressive list of customer wins the company has been announcing recently. Streaming players like Roku, Telus, Media Ocean and, most importantly, Netflix have all chosen Magnite to serve as their sole SSP (Supply Side Platform) to sell their ad inventory programmatically. The recent wins (which add to existing relationships with the likes of AMC Networks, DISH Media, Disney Advertising, FOX Corporation, FuboTV, LG Ads Solutions, VIZIO, and Warner Bros. Discovery) highlight the strength of Magnite’s offering within the Connected TV (CTV) value chain as the largest independent – and unbiased – supply-side ad exchange in the world. Though the wins have come in bunches lately, establishing this advantaged competitive position was not something that happened overnight, as CEO Michael Barrett has employed savvy, strategic acquisitions of CTV supply-side peers Telaria (2020), SpotX (2021), and SpringServe (2021) to bolster this position.”
Overall, MGNI ranks 4th among the worst advertising stocks to buy according to short sellers. While we acknowledge the potential of advertising companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. 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: None. This article is originally published at Insider Monkey.
