What happened
Shares of Magnite (MGNI +5.38%), the world's largest independent sell-side advertising platform, have been soaring recently. The stock jumped as much as 10.4% on Wednesday and is up about 7% as of 1:45 p.m. EST. Shares are up 57% over the past week.
This follows third-quarter results earlier this month that crushed Wall Street estimates, a handful of analyst upgrades for the stock, and bullish commentary from management during recent investor presentations. And now, the stock's massive valuation gap relative to demand-side advertising platform peer The Trade Desk (TTD +6.09%) appears to be narrowing.
Image source: Getty Images.
So what
Magnite's business was hit hard by a sudden slowdown in ad spend earlier this year when the economy came to a screeching halt. But it's recovering more rapidly than expected.
The tech company reported revenue of $61.0 million in the third quarter, ahead of an average analyst estimate for $53.5 million. Adjusted earnings per share were $0.06, beating a consensus forecast for a loss per share of $0.04. Though total revenue grew only 12% year over year in the third quarter, Connected-TV (CTV) revenue was up 51% during the period. In addition, management expects more strong CTV growth in the fourth quarter.
Even after the stock's run-up, there is a chasm between Magnite's valuation and The Trade Desk's. The latter operates on the other side of the data-driven ad-tech business -- the side that buys ads (not sells them). Magnite stock currently sells at 8 times analysts' average estimate for next year's sales, and The Trade Desk trades at 38 times 2021 sales estimates.
Now what
In recent investor meetings with RBC Capital and Stephens, Magnite's executives explained how more power seems to be shifting toward publishers, with browser cookies coming under scrutiny. These browser cookies were largely a tool for ad buyers; in a cookie-less world, sell-side platforms become more important as they are agents for the publishers -- and the publishers have first-party access to their own data.
In addition, Magnite management signaled that it still expects to eventually get back to the 20%-plus growth rates it was delivering for investors before the pandemic.
