Magnite is a leading Supply side platform (SSP) in the world. It works with ad agencies and demand side platform (DSPs) (largely with TTD) to fill the ad publishing space for brands that DSPs and ad agencies bring. The company is formed as a byproduct of the merger between Rubicon Project and Telaria which are seasoned companies in the SSP ad tech space.
Background:
These 2 companies pre-merger are among the leading SSP companies but nothing mind boggling so far in terms of the growth, projects or management charm. However Rubicon’s strength is the Omnichannel digital ads and Telaria’s strength is CTV ads space. The merger provides obvious synergies that Magnite now can be a single partner for publishers (i.e. anyone who wants to sell digital real-estate for ads. For example: Hulu selling ad space on its streaming app) to work and fill ad space with the best available bid rates in a transparent way. Also the brands can have better visibility, data privacy compared to working with walled gardens such as FB/Google.
Differentiating factors:
Global, Scaled, Independent and a differentiated player that can do everything – Yes, they are as they claim, cause the proof is in the pudding – they have exclusive deals now with Disney & Hulu XP platform and Discovery Channel.
Here is what CEO Michael Barrett said in RBC conference when asked about the Disney deal:
“Hulu sells programmatically directly to the buyers but the Telaria created a white label deal which is a very rare instance. Hulu wants to control it, which can work with their ad servers programmatically which is a celebrated deal as this shows Magnite’s technical prowess. One deal id enabling all the streaming platform ad space in one package and this is powered by Magnite. But there is however a particular channel like ESPN (Disney’s owned channel) that the buyer wants then Magnite can just pick that, which is an expansion of the deal and the example of instance where Magnite can have more benefit in the entire deal.”
Turnaround Thesis:
- Disney Partnership and benefits:
Well Magnite now believes they have a strong combination of Omnichannel and CTV platform on SSP side and moreover it is an independent platform unlike walled gardens such as FB/Google. And I tend to agree because being one of the independent large platforms is becoming more valuable for the large ad buyers/clients. Win-win idea here is that the large clients want more control over the data, targeting metrics etc. vs. the big clients having to work with Google/FB is total different scenario which lacks transparency and control.
Additionally, a giant like Disney choosing Magnite as the partner for Disney+ & Hulu streaming apps is a big confidence booster for the whole investor community. As an extension (to what Michael quoted above) lets expand and touch upon the partnership between Disney and Magnite here. This is not a typical partnership in a way that Magnite will sell the ad space for Disney, but Magnite created a white label solution for Disney to use their tools and software as Disney preferred to sell their own ad space and have the control over ad exchange. This is a one-off type of arrangement and Magnite won’t offer this usually. That being said, the revenue that Magnite gets is not based on their take rate of ~ 13%, but it’s more like Disney paying for software as a service. However the revenue benefit is not disclosed by Magnite at this time. But my observation around this is – Holy grail of streaming apps like Dinsey + and Hulu working with Magnite will naturally provide the networking effects, large set of data and honey pot of attraction for other clients to approach Magnite and should help them collaborate with more and more partners.
- Supply Path optimization
Slowly the market is shifting towards supply path optimization i.e. large clients are looking for fewer SSP players to work with instead of having deal many of the SSP partners in header bidder manner. This emergence of handful of SSPs those have scale and are global will have a lot to gain in this arrangement. Magnite being one of the large players, these benefits go a long way to this company.
- Natural Tail winds:
CTV and Programmatic advertising is booming as an industry and so this tide should lift many boats. This thematic is something one should watch and also try to be invested in for next 5 years.
Financials:
Q3 Revenue: $61M – +62% YOY
Revenue Mix: 18% CTV (+51% YOY), 48% Mobile and 34% Desktop
Net Loss: $10M
Adj EBIDTA: $13M vs Adj. EBIDTA of 6M in Q3 2019
Guidance for Q4: 72 to 75M
Valuation per Q3 revenue:
EV/Sales = ~ 9X (lot cheaper vs Roku TTD and for a good reason that Roku and TTD are the best in the industry in terms of moat, growth and value)
Future expectation/Guidance:
CEO also said they believe they can see 30% growth rate with 30% EBIDTA margins from here on which is a good news and supports the bull thesis around Magnite.
