Magnite Earnings: CTV Growth Hitting Take Rates but We Expect Recovery

We are maintaining our $15.50 fair value estimate for Magnite MGNI. While the firm is facing some headwinds in the short term, we think it is well positioned to benefit from the growing CTV and retail media programmatic ad market. After today’s 13% decline in reaction to PubMatic’s second-quarter results and another 14% drop afterhours on its own results, the stock is in 4-star territory.

While we were impressed with Magnite’s second-quarter results, which confirmed our assumption that a recovery in digital advertising is underway, we were surprised that the firm sees some weakness in CTV for the remainder of the year. It appears that while CTV ad buying and selling continue to move to programmatic, given the current economic uncertainty which we still think will ease, some CTVs are choosing platforms with lower take rates or lower prices, which is hurting Magnite in the short term. As we mentioned in our Aug. 9 The Trade Desk earnings note, the demand-side platform providers could also experience some pricing pressure or demand for lower take rates in the future.

We think as the economic uncertainty lessens, the more recently transitioned CTV ad sales to programmatic publishers will go to the market leaders such as Magnite and PubMatic, whose services have higher take rates but are also more scalable, which allows them to provide better inventory and campaign management, including frequency capping, and overall yield optimization.

Magnite also expects the weakness in ad spending in verticals like auto, media, and entertainment to reduce demand for its higher take rate managed services the rest of the year, further pressuring revenue growth. We look for such pressure to ease in the fourth quarter as economic uncertainty eases, bringing some demand back to Magnite’s managed services.