Shares of advertising-technology company Magnite (NASDAQ:MGNI) were spiking higher on Tuesday, albeit with some volatile swings, after the company reported results for the second quarter of 2020. Its reported revenue exceeded guidance by 8%. As of 12:40 p.m EDT, the stock was trading 10% higher.
Despite revenue beating guidance, it's unlikely Magnite investors were too excited about the Q2 results. Rather, third-quarter trends in connected TV are likely driving the stock higher today.
Earlier this year, Telaria and The Rubicon Project merged and named the new company Magnite. Q2 was the first reported quarter as a combined company. Management highlighted that it generated revenue of $42.3 million, good for year-over-year revenue growth of 12%. But this was on an as-reported basis. The results merely compared with The Rubicon Project's revenue for the second quarter of 2019, excluding Telaria's results from last year.
On a pro forma basis, which includes results from Telaria, revenue actually fell 18% quarter over quarter and 24% year over year. Revenue dropped because Magnite, as a sell-side platform, relies on advertising spending. And ad spending has been down for much of 2020 due to the coronavirus.
Last quarter, management noted spending was down 30%. During May and June, however, spending began improving. Overall revenue is now back to even for Q3 to date. And revenue from connected TV is up a whopping 50% year over year on a pro forma basis since the beginning of July. This is a very promising trend, and it's what has investors so excited today.
This was an important quarter for the technology company. Telaria brought the connected-TV business to The Rubicon Project when the two merged. But Telaria had been a long-term market underperformer as a stand-alone business. The two companies merged to achieve better scale for capturing the upside in sell-side advertising. If Telaria was going to shake off its track record of losing to the market, it needed to start proving it in the first quarter as a combined company.
The stakes were also high. Other ad-tech companies saw a spike in advertising demand in the second quarter and positive third-quarter trends. Had Magnite demonstrated lackluster revenue growth during a time with increased connected-TV demand, investors would have been right to question the long-term growth story. But with 50% growth in connected TV, Magnite may be in the early innings of delivering on long-term potential.