The Magnite Inc. shares: Go or no?

During the Reddit-fueled "meme stock" rise last February, Magnite's shares reached an all-time high of $64.39 per share.
WAN CHAI, Hong Kong - March 17, 2022 - PRLog -- However, the advertising technology company's stock is currently trading around a 52-week low of $15. After merging two smaller ad tech businesses, The Rubicon Project and Telaria, in April 2020, Magnite became the largest independent SSP (sell-side platform) for digital advertisements. Publishers and owners of digital media can use SSPs to manage and sell their own ad inventory.

Magnite's connected TV (CTV) business, which was developing at a significantly faster rate than its desktop and mobile ad operations, first delighted investors. Magnite's following acquisitions, however, revealed a problematic gap between organic and inorganic development and it wasn't expanding as quickly on an organic basis as many of its ad tech peers.

The bears will argue that Magnite is too reliant on acquisitions to generate new growth for its closely watched CTV segment, including its initial merger and last year's purchases of SpotX and SpringServe. They'll point out that Magnite's stated revenue growth differs significantly from its pro forma revenue, which normalizes year-over-year comparisons for its acquired businesses and began removing traffic acquisition expenses (ex-TAC) following its purchase of SpotX last April. Magnite attributed the delay to supply chain issues, which slowed ad sales from some companies, particularly in the car industry. Those headwinds are expected to persist throughout the fourth quarter, according to the company.

Magnite's near-term headwinds, according to the bulls, are just transitory. Its recent slowdown was compounded by difficult year-over-year comparisons to the spike in political ad sales expected in 2020 and its supply chain constraints are expected to reduce as the car industry improves.

Magnite has also escaped the effects of Apple's iOS privacy rules, which harmed targeted advertising companies like Meta Platforms and Snap last year because it doesn't engage in app installs and only delivers limited social advertising.

As a consequence, Magnite's desktop and mobile revenues continue to grow at double digit rates. On an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) basis, its margins are still growing.

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