On Tuesday, Needham maintained a Buy rating on Magnite (NASDAQ:MGNI) with a steady price target of $15.00, despite news that Disney's Real-Time Ad Exchange (DRAX) has stopped utilizing Magnite's services. The market's negative response to this development was deemed excessive by the firm, which suggested purchasing on the weakness observed.
Magnite's stock experienced downward pressure following reports of DRAX's decision to discontinue using their platform. Needham believes this reaction is unwarranted, emphasizing that DRAX represents a minimal portion of Disney's Connected TV (CTV) ad units and less than $5 million of Magnite's projected net revenue for fiscal year 2024, which totals $607 million. Magnite had previously indicated on its second-quarter 2024 earnings call that Disney was one of its fastest-growing revenue clients.
Despite DRAX's move, which has only excluded Magnite from two Demand-Side Platforms (DSPs), Google (NASDAQ:GOOGL) and The Trade Desk (NASDAQ:TTD), the company remains in use by the other 30 DSPs for DRAX transactions. The firm also noted that the CTV advertising space is highly curated, with bid floors and lists of approved bidders, setting it apart from the Open Internet's competitive pricing environment.
Needham also addressed the potential risks for Disney in choosing to bypass Magnite in favor of a Clean Room approach, suggesting that this could expose Disney's CTV viewer information to greater online risks. The firm believes that Magnite's role in anonymizing viewer data before it is available to any DSP offers a layer of protection that Disney is now foregoing. Moreover, Needham does not anticipate that other major players like Netflix (NASDAQ:NFLX) or Roku (NASDAQ:ROKU) will adopt a similar strategy as DRAX in the next two years.
In other recent news, Magnite, Inc. reported a robust second quarter in 2024, surpassing its top-line guidance and solidifying its foothold in the Connected TV (CTV) market. The company announced a significant partnership with Netflix, further boosting its market position.
Despite reporting a net loss of $1 million, an improvement from a $74 million net loss in the same quarter last year, Magnite's adjusted EBITDA and cash balance showed substantial improvement over the previous year.
The company's CTV contribution ex-TAC increased by 12% year-over-year, while DV+ contribution ex-TAC grew by 7%. The adjusted EBITDA rose to $45 million, marking a 20% year-over-year increase, and the cash balance grew to $326 million. Magnite plans to allocate these funds for share repurchases, small acquisitions, and debt repayment.
Looking ahead, Magnite anticipates continued growth in the CTV sector and reaffirms its full-year expectation of at least 10% growth in contribution ex-TAC. However, the company reported a slight downturn in its managed service business in Q2, which is expected to continue into Q3.
Despite these recent developments, strong partnerships with companies like Netflix, United Airlines, and Roku are expected to drive future growth.
InvestingPro Insights
Despite the recent setback with Disney's DRAX, InvestingPro data suggests that Magnite (NASDAQ:MGNI) may still have potential for growth. The company's revenue growth of 7.5% over the last twelve months indicates ongoing expansion, which aligns with Needham's optimistic outlook. Additionally, Magnite's stock has shown impressive performance, with a 83.69% price total return over the past year and a 30.91% return in the last six months, reflecting investor confidence despite recent challenges.
InvestingPro Tips highlight that Magnite's net income is expected to grow this year, and analysts predict the company will be profitable. This positive outlook supports Needham's Buy rating and suggests that the market's reaction to the Disney news might indeed be overblown. However, it's worth noting that Magnite's stock price movements are quite volatile, which investors should consider when evaluating the recent dip as a buying opportunity.
For those interested in a deeper analysis, InvestingPro offers 11 additional tips for Magnite, providing a more comprehensive view of the company's financial health and market position.
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