On Wednesday, Benchmark maintained a Buy rating for Magnite (NASDAQ:MGNI) with a steady price target of $21.00, despite the company's shares dropping over 15% earlier in the day. The sell-off was sparked by a Digiday podcast that revisited concerns about Disney's advertising platform, DRAX, and its plans to directly integrate with The Trade Desk (NASDAQ:TTD) and DV360. These concerns originally arose in March.
The analyst from Benchmark addressed the market's reaction, suggesting that while the details discussed in the podcast regarding the speed and extent of Disney's integrations might be impactful, Magnite has previously recognized that Disney's actions could dilute the long-term addressable market and upside opportunities. However, the likelihood of Disney completely excluding Magnite from its advertising stack was deemed improbable.
Magnite's importance to Disney's advertising operations was highlighted, indicating that Magnite could use its position as leverage in future negotiations. The analyst also pointed out that Magnite's recent expansion and renewal of deals with major companies such as Netflix (NASDAQ:NFLX), Roku (NASDAQ:ROKU), Fox, Paramount, United, and others suggest that it is not at risk of being phased out by industry players.
The timing of the sell-off coincides with the release of 12 million RTL shares, which may have contributed to the negative sentiment. Additionally, some investors might be mistakenly associating this share release with Disney's announcement, according to the analyst. Despite the perceived ongoing risk from Disney's independent moves and potential minor revenue implications (Disney is not considered one of Magnite's top three customers), the analyst deemed the stock's 15% value drop as an overreaction.
The analyst concluded that the current market response does not align with Magnite's prospects, including a promised pivot to stock buybacks, a net cash inflection, and complete debt paydown expected within the next 12 to 24 months. The company's current trajectory and potential for near-term fundamental gains were seen as reasons for the stock to maintain its Buy rating.
In other recent news, Magnite has surpassed its top-line guidance for Q2 2024, reinforcing its position in the Connected TV (CTV) market. Despite a net loss of $1 million, the company's adjusted EBITDA rose to $45 million, marking a 20% year-over-year increase. Magnite's cash balance also grew to $326 million, which the company plans to use for share repurchases, small acquisitions, and debt repayment.
B.Riley and Needham have both maintained their Buy ratings on Magnite, despite Disney's Real-Time Ad Exchange (DRAX) discontinuing the use of Magnite's services. Both firms suggested that the market's response to this development was excessive, as DRAX represents a minimal portion of Magnite's projected net revenue for fiscal 2024.
In other developments, Magnite has solidified partnerships with companies like Netflix, United Airlines, and Roku. These partnerships are expected to drive future growth. The company anticipates continued growth in the CTV sector and reaffirms its full-year expectation of at least 10% growth in contribution ex-TAC.
InvestingPro Insights
To complement Benchmark's bullish stance on Magnite (NASDAQ:MGNI), recent data from InvestingPro provides additional context for investors. Despite the recent sell-off, Magnite's stock has shown a strong performance over the past year, with a 66.58% price total return. This aligns with an InvestingPro Tip indicating a "high return over the last year."
The company's financial health appears stable, with InvestingPro data showing that liquid assets exceed short-term obligations, and the company operates with a moderate level of debt. This financial positioning could support Magnite's promised pivot to stock buybacks and debt paydown, as mentioned in the analyst's report.
While Magnite wasn't profitable over the last twelve months, an InvestingPro Tip suggests that net income is expected to grow this year, and analysts predict the company will be profitable in the current fiscal year. This positive outlook may justify the market's eventual recovery from the recent overreaction.
For investors seeking a deeper understanding of Magnite's potential, InvestingPro offers 11 additional tips, providing a more comprehensive analysis of the company's financial position and market prospects.
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