Should You Be Buying Magnite?
Should You Be Buying Magnite?
Taking a Look at Magnite (NYSE: MGNI) Ahead of Earnings
Before we dive into Magnite's (MGNI) recent endeavors, let's rewind and shed light on the company's trajectory post-Q2 2023 report and my rationale for maintaining faith in their vision. My association with MGNI stretches over six years, tracing back to its roots as “The Rubicon Project.” Its merger with “Telaria” birthed “Magnite,” establishing it as the world’s largest independent supply-side platform (SSP).
Despite outperforming analyst forecasts and fortifying their financial position in the Q2 2023 report, MGNI's shares saw a sharp 50% decline, which was primarily influenced by sandbagged revenue projections and the MediaMath bankruptcy. The AdTech sector, currently misunderstood by many, grapples with economic downturn challenges. A tepid advertising spend from publishers and advertisers accentuates MGNI's guarded outlook. Yet, with programmatic advertising still in its infancy and fragmentation, my optimism for the sector and MGNI remains unshaken. For an in-depth perspective, I recommend revisiting my Cord-Cutter piece, you will find this in the archive. But for now, let's take a look at what MGNI has in store as we approach their Q3 2023 earnings report.
Magnite’s Momentum Ahead of Earnings
At the end of September, MGNI proudly revealed its alliance with Snowflake (NYSE: SNOW), the forerunner in Data Cloud solutions. This strategic partnership seamlessly integrates Snowflake within Magnite Access, MGNI's advanced suite that empowers media players to manage and transact audience segments effectively.
What does this mean for the industry? Agencies, advertisers, and media moguls can now harness data tailored to their requirements across Magnite's vast streaming repository, which covers over 80 million CTV households in the US alone. This represents an impressive 90% of the nation's ad-supported CTV viewership. Notably, industry giants including GALE, GroupM, and Omnicom Media Group are set to benefit from this enhanced integration. At its core, Snowflake's Media Data Cloud is a powerhouse, enabling countless entities to merge, share, and capitalize on their data assets. "Snowflake prides itself on ensuring transparent, privacy-focused data connectivity. This synergy with MGNI reinforces our commitment to offer advertisers unparalleled reach, even amidst shifting addressability norms," remarked Bill Stratton, Global Head of Media at Snowflake.
The partnership between MGNI and Snowflake offers multiple advantages for the business:
Enhanced Data Integration: By collaborating with Snowflake, MGNI integrates a powerful Data Cloud solution into its existing suite, MGNI Access. This strengthens the offering by providing a richer, more diversified set of tools and insights derived from Snowflake's vast data capabilities.
Expanded Audience Reach: Through this collaboration, MGNI's streaming supply is bolstered with richer data sets, potentially allowing for a more targeted advertising experience. This can translate to greater audience engagement, optimizing the value proposition for advertisers and thereby generating more revenue opportunities for MGNI.
Efficiency and Precision: Snowflake's Media Data Cloud aids in breaking down data silos and provides a unified data experience. This means more accurate audience segmentation and targeting, leading to better advertising campaign results for MGNI's clients.
Strengthened Position in the Market: With a partnership with a major player like Snowflake, MGNI reinforces its position as a leading ad tech company. Such strategic alliances usually enhance credibility, expand client bases, and foster trust within the industry.
Client Trust and Satisfaction: Existing mutual clients like GALE, GroupM, and Omnicom Media Group can leverage the integrated services. By providing a better, more seamless experience for these significant players, MGNI stands to foster loyalty and potentially attract new high-profile clients.
Future-Proofing: Bill Stratton from Snowflake mentions the "upcoming changes to the addressability landscape." By partnering with Snowflake, MGNI is proactively adapting to future challenges in the ad tech world, ensuring they remain relevant and effective in serving their clients.
Revenue Growth: The main goal of integrating these systems is to drive results for advertisers and agencies. By providing a platform that ensures consistent results despite a changing landscape, MGNI can potentially boost its revenue streams.
Shortly after this, MGNI unveiled its machine learning-enhanced A/B testing feature for their Demand Manager product. Grounded in Prebid technology, Demand Manager equips top-tier publishers with invaluable tools and insights, adapting to the dynamic landscape of ad exchanges and formats. The novel feature employs machine learning to present automated Prebid optimization suggestions, targeting a significant uptick in revenue. This amalgamation of data from Prebid and ad server auctions, along with session data, allows publishers to seamlessly initiate machine-suggested settings for A/B testing. Initial assessments indicate an 80% revenue increase for publishers who leveraged this machine-generated experimental setup.
MGNI's introduction of the machine learning-enhanced A/B testing feature within its Demand Manager product showcases the company's commitment to innovation and its ability to meet the evolving needs of publishers in the ad industry. Specifically, for MGNI, this enhancement:
Strengthens Product Offering: By incorporating machine learning into their product, MGNI ensures their Demand Manager stays ahead of the competition and remains a leading solution for publishers.
Drives User Satisfaction and Revenue: Initial tests revealed an 80% revenue increase for publishers utilizing the machine-generated experimental setup, which not only helps the publishers but also boosts MGNI's reputation and potential for increased business.
Promotes Ease of Use: The machine learning feature simplifies the process for publishers, automating optimization recommendations and allowing them to make data-driven decisions with a single click. This user-friendliness can lead to higher adoption rates and user retention.
Positions MGNI as an Innovator: By fusing machine learning with A/B testing, MGNI solidifies its position as an innovator in the ad tech industry.
Builds Trust: Positive feedback from industry players like LADbible and REA, who have experienced tangible benefits from the feature, builds trust and credibility for MGNI in the market.
My Take
These announcements could be a game-changer, especially the partnership with Snowflake. This alliance seamlessly incorporates Snowflake's capabilities into MGNI's advanced suite, Magnite Access, empowering media entities to manage and transact audience segments effectively. Like mentioned above, the implications are profound: advertisers can now tap into data across MGNI's expansive streaming base, encompassing 90% of the US's ad-supported CTV viewership. The collaboration promises richer data integration, broader audience engagement, more efficient and precise advertising campaigns, and a fortified market position for MGNI.
Additionally, MGNI has flexed its commitment to innovation by launching a machine learning-enhanced A/B testing feature in its Demand Manager product. Grounded in Prebid technology, this feature uses machine learning to offer automated Prebid optimization suggestions, resulting in an impressive 80% revenue increase during initial tests.
So, what does this mean for Magnite's future?
To me, these calculated moves strengthen MGNI's product suite, bolstering its position in the industry. The Snowflake alliance not only ensures MGNI remains at the forefront of the AdTech industry but also future-proofs it against the shifting dynamics of the digital advertising landscape. Meanwhile, the machine learning enhancement underscores MGNI's focus on innovation and user-centric solutions, which will likely foster user loyalty and drive further adoption. The company's ability to anticipate industry trends, forge strategic alliances, and prioritize user experience paints a promising picture for its future.
Going into next earnings report, I’m keeping an eye on two primary metrics:
CTV (Connected-TV) Growth
Debt
MGNI’s recent CTV performance has lagged expectations, but I remain cautiously optimistic. Factors such as industry challenges, the involvement of MediaMath, the nascent stage of AdTech, and market fragmentation make me hesitant to write off their potential just yet. However, a pressing concern is the significant debt MGNI has accumulated, largely stemming from a rather aggressive acquisition strategy during 2020-2021. While the pace of these acquisitions could have been more measured, it's encouraging to see the company acknowledge this and take steps towards rectifying it, notably reducing their debt by $100M quarter-on-quarter.
While my initial investment in MGNI stands at a bit over $5 per share, I must admit my confidence isn't as robust as it once was. Nonetheless, I still view MGNI as presenting a compelling risk-to-reward opportunity. As I've often advocated, a diversified approach is crucial when navigating the AdTech landscape.