Earnings Reports (Feb 26th-Mar 1st)

Taking a Look at Earnings Reports for Magnite (MGNI) and Rocket Lab (RKLB).

1. Magnite (MGNI)

Yesterday, after-hours, Magnite released their Q4 2023 financial results:

Q4 2023 Highlights:

• Revenue: $186.9M, an increase of 7% from Q4 2022

• Contribution ex-TAC:

  • Total: $165.3M, surpassing guidance and up 6% from Q4 2022

  • CTV: $63.5M, exceeding expectations but down 2% YoY

  • DV+: $101.8M, above guidance and up 11% YoY

• Net Income: $30.9M, or $0.16 per diluted share, a significant improvement from a net loss of $36.4M in Q4 2022

• Adjusted EBITDA: $70.4M with a margin of 43%, up from a 41% margin in Q4 2022

• Non-GAAP Earnings Per Share: $0.29, up from $0.24 in Q4 2022

• Operating Cash Flow: $58.6M

Full-Year 2023 Performance:

• CTV Ad Spend Growth: Over 20%

• Revenue: $619.7M, up 7% from 2022

• Gross Profit: $116.9M in Q4, showing an 82% increase; however, a full-year decrease of 22%

• Contribution ex-TAC: $549.1M for the year, a 7% increase

• Net Income/Loss: Shifted from a loss of $130.3M in 2022 to a loss of $159.2M in 2023

• Adjusted EBITDA: $171.4M, a slight decrease from $178.8M in 2022

• Earnings Per Share: Showed improvement in Q4 but declined over the full year

2024 Expectations:

• Q1 2024 Guidance:

  • Total Contribution ex-TAC: Between $122M and $126M

  • CTV Contribution: Between $49M and $51M

  • DV+ Contribution: Between $73M and $75M

  • Adjusted EBITDA Operating Expenses: Between $106M and $108M for Q1, and $101M and $103M for Q2

• Full-Year 2024 Outlook:

  • Contribution ex-TAC growth: Approximately 10%, with CTV growing faster than DV+

  • Adjusted EBITDA margin expansion: 100 basis points

  • Significant growth in Adjusted EBITDA and even higher growth in free cash flow

CEO Comments:

• Michael G. Barrett highlighted strong Q4 performance, especially in CTV and DV+ revenues. The company is optimistic about 2024, focusing on top-line growth and profitability, supported by strategic initiatives like the combination of two CTV platforms and the launch of ClearLine for direct CTV inventory transactions.

My Take

This quarter wasn't just decent for MGNI; it actually exceeded expectations. The company is on a clear path to strengthening its financial health, as evident from improvements in its balance sheet and income statement. It's somewhat puzzling that the market didn't react more positively in after-hours trading, especially considering MGNI's performance was notably better than PubMatic's (PUBM-MGNI’s direct competitor), which saw a significant uptick post-earnings release.

Having been an investor in MGNI since its days as the Rubicon Project in 2017, my focus on programmatic advertising is longstanding. However, I'm currently facing concerns about MGNI's future and that of other smaller Supply-Side Platforms (SSPs). With the latest guidance, particularly in an election year, it's apparent that MGNI isn't scaling as expected (Management has emphasized this for almost a year and a half, now that it’s here, the guidance is truly not what anyone was anticipating). This industry's cyclical nature and dependency on publisher spending and election cycles only amplify my disappointment with their outlook.

Given these considerations, I'm contemplating whether it's time to divest from MGNI in favor of more promising ventures within my portfolio, or perhaps invest in a definitive industry leader like The Trade Desk (TTD). This decision is further influenced by TTD's expansion into the SSP market, overshadowing MGNI's efforts with "ClearLine"—a project that has seen limited progress and scant details from CEO Michael Barrett. The strategy moving forward, for myself and potentially other MGNI investors, is to lean towards reallocating the capital to more lucrative opportunities. Although exiting MGNI will still yield a profit from my initial cost basis of just over $6/share, it falls short of the aspirations I had for the stock, especially missing out on its peak in 2021. Thus, it's likely MGNI will soon be absent from my portfolio, marking the end of a significant chapter in my investment journey.

2. Rocket Lab (RKLB)

Rocket Lab announced their Q4 2023 results this week. The company had a strong year in 2023 with significant achievements across its launch and space systems businesses, including revenue growth and major contracts:

2023 Highlights:

• Revenue Growth: Increased by 16% YoY.

• Gross Margins: Expanded GAAP and non-GAAP gross margins by 12.0 and 6.9 percentage points, respectively.

• Major Contract: Awarded up to $515M from the Space Development Agency, marking RKLB's role as a prime contractor for the first time.

• Launch Records: Achieved a new annual record with ten Electron missions flown.

• Infrastructure Milestones: Progressed in major infrastructure developments, including the new manufacturing complex in Baltimore for Neutron’s production.

Q1 2024 Guidance:

• Revenue: Expected to be between $92M and $98M.

• Space Systems Revenue: Between $60M and $65M.

• Launch Services Revenue: Between $32M and $33M.

• Gross Margins: GAAP gross margins predicted to be between 24% and 26%; non-GAAP gross margins between 29% and 31%.

My Take

I'm streamlining my perspective on Rocket Lab (RKLB) to focus on the essentials, particularly the Neutron launch's significance. The timeline for Neutron becoming operational is critical; any delays introduce risk, considering the company's ambitious goal to enhance cash flow and directly compete with industry giants like SpaceX. Their recent capital raise hints at strategic moves, including mergers and acquisitions, yet the undercurrent of concern is the potential fallout from a failed Neutron launch— a scenario dire enough to reconsider the investment thesis altogether. Despite the allure of new contracts and business ventures, the success of Neutron's launch remains a pivotal factor. Therefore, my stance remains unchanged until Neutron's successful deployment, as this event is crucial not only for validating Rocket Lab's strategic direction but also for sustaining investor confidence.