On Tuesday, Wells Fargo initiated coverage on Magnite (NASDAQ: MGNI) stock with an Equal Weight rating and set a price target of $13.00. The firm's analysis indicates that Magnite is poised to benefit from its partnership with Netflix (NASDAQ:NFLX), particularly in the upcoming years. Wells Fargo projects a revenue increase from the deal, estimating $30 million in 2025 and $65 million in 2026, which is expected to place the company's revenue 2% and 5% above the consensus, respectively.
The analyst noted that while the Netflix deal is anticipated to boost Magnite's revenue, there is an expectation of continued pressure on the take-rate due to the shift in mix to Connected TV (CTV), which may limit EBITDA flow-through. This take-rate pressure is factored into the Equal Weight rating and the price target.
The specifics of the deal with Netflix, such as the long-term Ad-Supported Video on Demand (AVOD) subscriber mix, take-rate, and the programmatic share relative to Netflix's sales force, remain undisclosed. Despite these uncertainties, Wells Fargo suggests that Netflix is likely to leverage programmatic advertising to enhance its relatively small sales force.
The firm's assumptions include a ramp-up of programmatic advertising in 2025, with a prediction that it will account for half of Netflix's advertising revenues by 2026. In this scenario, Magnite is expected to earn a 3% take rate from the programmatic advertising revenues generated by Netflix. This detailed outlook provides a basis for Wells Fargo's initiation of coverage on Magnite with the stated rating and price target.
In other recent news, Magnite has reported encouraging financial results for Q2 2024, despite a net loss of $1 million. The company's adjusted EBITDA rose to $45 million, a 20% year-on-year increase, and its cash balance grew to $326 million. The firm intends to use these funds for share repurchases, small acquisitions, and debt repayment.
Magnite has also extended its contract with Disney for an additional two years, a move that strengthens their six-year partnership. This collaboration allows Disney to monetize its ad-supported content by connecting with over 30 demand-side platforms in the U.S, with plans to expand globally.
Despite Disney's Real-Time Ad Exchange discontinuing the use of Magnite's services, analysts from Benchmark, B.Riley, and Needham have maintained their Buy ratings on Magnite. They suggest that the market's response to this development was excessive, as this represents a minimal portion of Magnite's projected net revenue for fiscal 2024.
In addition to these developments, Magnite has fortified partnerships with companies like Netflix, United Airlines, and Roku (NASDAQ:ROKU). These collaborations are expected to drive future growth. The company anticipates continued growth in the Connected TV sector and reaffirms its full-year expectation of at least 10% growth in contribution ex-TAC.
InvestingPro Insights
InvestingPro data and tips offer additional context to Wells Fargo's analysis of Magnite (NASDAQ: MGNI). The company's market cap stands at $1.81 billion, with a revenue of $649.22 million over the last twelve months as of Q2 2024, showing a 7.5% growth. This aligns with Wells Fargo's expectation of revenue increases from the Netflix partnership.
An InvestingPro Tip indicates that net income is expected to grow this year, which could be influenced by the projected revenue boost from the Netflix deal. Additionally, the tip that Magnite operates with a moderate level of debt suggests the company may have financial flexibility to support its growth initiatives.
However, investors should note that Magnite's stock price movements are quite volatile, as highlighted by another InvestingPro Tip. This volatility is reflected in the significant price changes over different timeframes: a 93.94% return over the past year and a 39.43% increase over the last six months.
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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