Magnite, Inc. (MGNI) provides services in the digital advertising field for display, online video, CTV and other medium. Magnite is a supply side platform (SSP). The supply-side platforms work in partnership with publishers to increase their advertising revenue.

Magnite is claimed to be the largest independent SSP in the world. To this end, the company has recently entered into several mergers and acquisitions (M&A). In spring 2020, the company joined forces with Teleria, Inc., which is a global leader in CTV technology. SpotX was also purchased in spring 2021. Both firms are involved heavily in CTV, the highly coveted sector of connected television.

MGNI stock is a result of all this optimism. CTV is a highly desired growth segment for companies like Magnite, Tremor International (TRMR), Perion Network (NASDAQ:), the Trade Desk (NASDAQ:), and PubMatic (PUBM), since CTV is not affected by changes in laws or policies relating to third-party cookies. This eliminates large risks.

This medium is also growing while satellite and cable TV are declining. This trend is most evident with 18-49-year olds.

This stock has a neutral rating. (See Magnite stock charts on TipRanks)

Second Quarter 2021 Results Encouraging

Magnite reported a very successful Q2 2021 on August 5th, 2021. Magnite reports a revenue metric called “revenue ex-TAC,” or revenues less the traffic acquisition costs, or “TAC”. TAC stands for the total costs passed on to clients. It gives a better picture of revenue and growth that is organic and not just a result higher prices passed on to clients.

Magnite beat the previous year’s Q2 2021 by increasing its revenue ex-TAC by more than 139% over the past year. CTV was responsible for more than 34% or $34.3M of the revenue. Magnite’s competition Tremor International, which reported just $21M or 15% of its revenue from CTV, is comparable.

Magnite’s quarter ended with a net profit of $87M, but this was due to the tax advantage. The company suffered a loss of $51M without the tax benefits.

You should also consider how recent acquisitions have affected both the results and the balance. While revenues, as described above, grew tremendously, so did long-term debt. Although the company had reported no long-term debt in Q2 2020 it has seen its total increase to $700M by the end of this reporting period. It is quite significant for a company with a top-line of less than 500 million dollars each year.

Stock-based compensation, mergers and acquisitions via stock stock issuances led to an increase in the number of shares outstanding to 143M, compared to 109M for Q2 2020.

Growing Diluted Share Count

This means that while revenue ex-TAC rose 138% in total, it only rose 80% on a per diluted weighted-average share basis. The dilution has tempered this impressive rise from $0.39 to $0.70 cents per share.

Although the share count and long-term debt are both positive, they can also be detrimental. These traits show management’s willingness to take risks in an industry that is competitive. This is a good trait provided management is smart.

Is MGNI stock worth it?

Due to these issues, the 9.09x forward price/sales (P/S ratio) may seem excessively high. The ratio is significantly higher than many of the competitors mentioned above, with TTD being the exception. TTD is an established company.

Although the stock has increased by over 350% during the last twelve months, it’s down more than 34% in six months. This is because investors are reassessing competition, results and risks. The stock could fall further before becoming a Buy. Investors may wait until the forward P/S is between 5-7x and buy or add shares.

Analysts Very Optimistic

Wall Street analysts are extremely bullish on MGNI stock. TipRanks has given the stock a Buy rating by six of its seven analysts. One analyst is holding a Hold rating.

The average Magnite price target is $45.86. This implies more than 57% upside from the stock’s September 17, 2021 closing price of $29.18.

The analyst target ranges from $37 to $70, which is quite unusual. It is possible for analysts to have different opinions and this can lead to uncertainty.

Summary on Magnite Stock

Magnite appears laser-focused on growing its CTV platform business. In 2022, the company expects to generate over $500 million in revenues. Although recent acquisitions have fueled growth, its balance sheet has not yet been free of debt.

While interest payments may be low, this could make further M&A activity much more difficult. As such organic growth will take center stage in future. The valuation is closer to a Buy rating than the stock, which has seen it suffer over the past six months.

Disclosure: Bradley Guichard held a position at the time this article was published.

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