Last April, Rubicon Project and Telaria merged to become Magnite (NASDAQ:MGNI), the world's largest independent supply-side ad tech company. Magnite's stock has surged more than 420% since the merger, but it remains a mid-cap company with an enterprise value of about $3.4 billion.

Could Magnite eventually grow into a large-cap company and generate millionaire-making returns for its investors? Let's dig deeper into its business model, growth rates, and valuations to find out.

What does Magnite do?

Magnite operates a supply-side platform (SSP) that helps publishers on websites, apps, and connected TV platforms manage their own ad inventories, fill them with ads, and generate revenue.

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Image source: Getty Images.

This is different from a demand-side platform (DSP), which helps trade desks, ad agencies, and advertisers bid for ad inventories and manage ad exchanges. Together, SSP and DSP platforms help companies reach consumers through programmatic ads, which are bought via automated, algorithm-powered bidding processes.

Magnite generated 49% of its revenue from mobile platforms in the first nine months of 2020. Another 37% came from PC platforms, while the remaining 14% came from connected TV (CTV) services.

How fast is Magnite growing?

Magnite's total revenue rose 29% year over year to $139.6 million in the first nine months of 2020. But on a pro forma basis, which combines Rubicon and Telaria's results before the merger, its revenue dipped 1%. On the same basis, its net loss narrowed slightly from $73.4 million to $69.7 million, while its adjusted EBITDA rose 26% to $13.1 million.

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Image source: Getty Images.

Magnite's revenue growth was throttled by sluggish ad spending throughout the pandemic, especially on mobile and desktop platforms in the second quarter. However, both segments recovered in the third quarter, and its connected TV business expanded throughout the crisis.

In the first nine months of 2020, Magnite's mobile and desktop revenues grew 15% and 8% year over year, respectively. Its connected TV revenue, which was included on a pro forma basis over the past two quarters, rose 12% year over year in the second quarter and 51% in the third quarter.

Magnite attributed the CTV segment's acceleration to cord-cutters, who are abandoning traditional cable TV services for streaming media platforms; an expansion of its partnership with Disney; and an acceleration of those secular trends throughout the pandemic.

Magnite expects its fourth-quarter revenue to rise about 20% sequentially, and for its adjusted EBITDA margin to expand about seven percentage points sequentially to 30%.

Analysts expect Magnite's total revenue to rise 37% this year and 26% next year. On the bottom line, they expect it to generate non-GAAP earnings of a penny per share this year, followed by $0.08 per share next year.

The competition and valuations

Magnite became the top independent SSP after its merger last year, but it still faces competition from big players like Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google Ad Manager, Twitter's (NYSE:TWTR) MoPub, and Verizon (NYSE:VZ) Media's One by AOL.

However, those rivals mainly target mobile and PC users instead of Magnite's growing CTV market. Therefore, Magnite can still leverage its strong position in the streaming video market -- which Valuates Reports claims will grow at a compound annual growth rate of 18.3% between 2019 and 2026 -- to shore up its defenses in the mobile and PC markets.

Magnite trades at about 11 times next year's sales, which is a surprisingly low price-to-sales ratio for a company generating double-digit-percentage sales growth. Its low enterprise value also makes it a lucrative takeover target for larger and more diversified advertising and media companies.

Could Magnite generate more multibagger gains?

Magnite has attracted a stampede of bulls over the past year, and I believe it still has room to run. It's a solid secular play on the programmatic ad market and the death of traditional pay-TV platforms, its revenue growth remains robust, its bottom line is improving, and it's a good takeover target. Therefore, I believe Magnite could still generate millionaire-making returns over the long term for patient investors.

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.