Ad spending fell in the first half of 2020, as companies cut costs under the weight of one of the sharpest economic downturns in history. But more recently, spending has recovered, as economic conditions have stabilized, and a path forward from the coronavirus pandemic -- and hopefully the global economy -- has become more clear.
One stock that investors have become more aware of and bullish on is Magnite (MGNI 3.42%), the ad-tech company heavily involved in Connected TV advertising. Shares more than doubled in November and through Dec. 24 had gained almost 250%. On the Dec. 1 edition of "The Wrap" on Motley Fool Live, Host Jason Hall made the case for why investors should still consider buying Magnite shares, even after the strong run over the past couple of months.
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Jason Hall: Magnite, ticker, MGNI. Magnite stock shot up 110% last month. It's up about 140% since the beginning of the year. November was a good month. Investors started paying attention to Magnite again.
This is a small ad-tech company, plays a really important role on the sell side of programmatic ad content. Here's the thing: Shares were actually down for the year as recently as like early to mid October, because it's an ad company. This is ad revenue, and every time there is a recession, the first thing that marketers do is they cut ad spend. Companies cut back on their ad spend.
Needless to say, companies have realized that it's coming back. The ad revenue is coming back. The company had reported early November, total revenues were up about 12%. Magnite is the combined, let's see if I can remember here, I'm drawing a blank all of a sudden, you had Telaria and Rubicon Project. When they merged, Rubicon was technically the acquirer, so when they report their revenues, it looks like the growth was a lot higher, but when you factor in the Magnite revenues that came along, it was up about 12%.
But Connected TV revenue was up 51%. This is really big and I think it's something people really need to focus on. First thing, again, just a reminder that ad spend is starting to recover. But the big one is that Connected TV market is really growing and it's going to get a lot bigger. In 2016, so four years ago, I think 80% of American households had to pay TV subscription, cable or satellite TV. That number fell to 71% ast year. It's going to fall below 70%, I think by the end of this year.
At the same time, over 75% of households now have a Connected TV. The bottom line is that those ad dollars, a lot of them are not going to go necessarily directly to the replacement for TV, but a ton of them are going to go to Connected TV. Because marketers have to get the product, their service, they have to get it in front of potential customers.
Magnite is in just such a winning position as the largest independent sell-side ad tech company that really embedded in Connected TV. Here's why I think you really need to be looking at the company. Revenues are still under $200 million over the past 12 months. Market cap is just about $2 billion dollars. There is an enormous runway of growth as TV ad spend continues to shift away from cable and shifts toward connected TV, and this is just a great business to own. I'm a big fan of Magnite.