What happened

Shares of advertising-technology company Magnite (NASDAQ:MGNI) climbed 30% in October, according to data provided by S&P Global Market Intelligence. The stock got a boost as investors digested big deals with media companies like Discovery and Disney. And advertising demand is demonstrably surging, leading to further investor optimism for the company's upcoming third-quarter results.

So what

There's two sides of programmatic advertising, which is advertising tailored in real time to the consumer. One side is demand-side ad platforms that partner with brands. The other side is supply-side platforms like Magnite that work with media publishers to generate the most revenue for their ad slots. Magnite is an omnichannel platform, but a promising growth segment is in connected-TV (CTV) advertising. Therefore, any new CTV partner the company gains is good news.

A chalkboard displays a chart that illustrates value increasing over time.

Image source: Getty Images.

At the end of September, the company announced that Discovery will use its technology in select international markets. Later in October, the stock surged higher after Disney, also a Magnite customer, announced its working hard to increase the monetization of its content. Discovery and Disney are two of the biggest streaming-video publishers around -- great news for Magnite.

Lastly, the stock went up because advertising demand is rebounding after falling earlier in 2020. Looking at results from ad-tech players and other companies that rely on ad revenue, it's clear that the third quarter was strong. This likely carried over into Magnite's results as well. Indeed, at the very least, investors know Q3 started strong for the company. When it reported results for the second quarter, management said that CTV revenue was up 50% year over year in July.

Now what

As far as technology stocks go, Magnite looks exceptionally cheap at just six times trailing sales. But remember: This company is a combination of former companies Telaria and The Rubicon Project, two stocks that historically failed to beat the market. They simply didn't deliver on growth, and it's why this remains a cheap, overlooked stock.

The companies combined to form Magnite to create the scale necessary to capture the upside in programmatic advertising and specifically the CTV industry. The merger is now complete, so there's no good excuse for poor execution. Therefore, to finally begin changing Wall Street's perception of this stock, the company needs to deliver in the third quarter. Management guided for quarterly revenue of $51 million to $55 million. Given the trends in its favor, anything less than this would be good reason to take a step back and question the long-term thesis.

Magnite is scheduled to report third-quarter results on Nov. 9.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.