Connected TV advertising is a fast-growing market that targets ads to consumers while they are streaming content on smart TVs or streaming platform devices such as Roku. Research firm Statista estimates the connected TV advertising market to grow from $9 billion in 2020 to $27.5 billion by 2025. Magnite (NASDAQ: MGNI) is one of the market leaders in advertising technology that helps content publishers monetize their platforms by serving up programmatic ads tailored to the audience.
The company started as a merger of advertising company The Rubicon Project and connected TV technology company Telaria in 2020. Since then, Magnite has acquired competitors SpotX and SpringServe to create the largest player in the sell-side AdTech space. The young company already counts two of the largest players in the connected TV space, Disney-owned (NYSE: DIS) Hulu and Roku, Inc. (NASDAQ: ROKU) as customers. As the company fully digests the recent acquisitions, Magnite should be poised to dominant on the sell-side.
Magnite has been on a wild ride during 2021, and it started the year running from $25 per share to $61. The company has drifted downward in recent months and has been caught up in the downtrend that has hammered high multiple growth stocks as of late. Shares are currently trading around $15.41 per share, so investors have the opportunity to pick up a fast-growing company cheaper than they could at the beginning of the year, and Magnite now has the SpotX and SpringServe businesses in the fold.
The volatility Magnite has exhibited over the past year may give some investors pause, but consider the size of the market opportunity for the digital ad and connected TV space. For instance, the largest player on the buy-side of the market is The Trade Desk, Inc. (NASDAQ: TTD) which has a market cap of almost $47 billion. Magnite currently holds a market cap of only about $2.4 billion, which suggests that the company has a lot of room for growth as the market matures. Recent volatility has given investors an attractive entry point to a company that has the potential to be a long-term winner in emerging technology.
Magnite’s growth rates compared to the advertising industry average have been far superior and are estimated to stay that way for 2022. When looking at sales growth, Magnite has seen a one-year change of 75.6%, while reporting three-year average sales growth rates of 46% and 6.9% over a five-year period. Over the course of 2022, Magnite is estimated to see additional sales growth of 28.6%.
The overall industry has not been as fortunate on the growth front. The industry average one-year sales change is only 10.3%. However, the industry average sales growth over the past three and five years have been an abysmal -5.4% and -7.2%, respectively. The average sales growth estimate for the adverting industry for 2022 is a lackluster 3.5%.
The company recently announced a $50 million share buyback plan over the next 12 months, demonstrating that management believes the company’s prospects are bright, especially at these price levels. The stock has a beta of about 2.25, so Magnite is not for the faint of heart, especially over the short term. For those with an eye toward the long-term future of the connected TV and targeted advertising market, however, Magnite presents an opportunity to invest early in a market leader that can grow both organically and through acquisitions.
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