Magnite's (MGNI +2.27%) stock price has been off to the races over the last six months since I decided to buy. The stock is up nearly 600% since last autumn, a run supported by its recent announcement that it was purchasing connected TV (CTV) advertising platform SpotX for $560 million in cash plus 14 million new shares of Magnite. It isn't the extreme value it was before, but still a pretty good deal in my view.
The largest independent sell-side advertising platform is betting big on video advertising, and rapid shifts toward internet video and streaming TV put Magnite in a great position. For investors looking to bet on CTV, this is a way to play the whole movement without picking which streaming service will come out on top.
Highlights from the final months of 2020
Magnite is a bit of an unconventional story in the advertising technology space. It's a product of merger between Telaria and The Rubicon Project which finalized in April 2020 and then changed its name to Magnite last summer. The addition of SpotX will build on its lead as a sell-side platform (for content producers selling ad slots) for digital video. By contrast, its much larger peers The Trade Desk (TTD +0.70%) and Roku (ROKU +0.55%) have mostly grown organically.
Image source: Getty Images.
Nevertheless, I'm not going to knock Magnite's path to this point, because it is clearly emerging -- along with The Trade Desk and Roku -- as a dominant player in the video ad tech space. There's substantial growth synergy when patching together complementary intangible assets, and Magnite has demonstrated this in the last year. It's rebounded quickly after the advertising freeze last spring at the start of the pandemic, and it's now a highly profitable tech platform. Revenue in the fourth quarter of 2020 was $82 million, up 20% year over year when comparing it to the combined results from then stand-alone companies Telaria and The Rubicon Project. Adjusted EBITDA was $30 million, with a very healthy adjusted EBITDA profit margin of 37%, nearly double the profit metric from a year ago.
Management expects Q1 2021 revenue to be $58 million to $62 million and reiterated that it sees long-term revenue growth of at least 20% or more for its business. And with the inclusion of SpotX's highly profitable CTV platform, expect adjusted EBITDA margins to be in the 30%-to-35% range over the long term.
A big bet on CTV's future
CTV in particular is a big opportunity for Magnite. Full-year 2020 CTV revenue was just $34.3 million, 15% of total sales, but it's also its fastest-growing segment. CTV grew 53% year over year in Q4 alone. Adding SpotX to the mix is significant, as it will make streaming TV the largest piece of the pie for Magnite. Of the $116 million in revenue SpotX brought in in 2020, $67 million was CTV -- with a 40% annual growth rate for the business being acquired.
As mentioned, Magnite sees synergy by expanding its platform with SpotX. CEO Michael Barrett illustrated this with an update on the most recent earnings call. Magnite has been a sell-side partner for Disney's (DIS 0.34%) streaming service Hulu for a few years, but Barrett said the House of Mouse is expanding its use of Magnite in ESPN, ABC, and other properties. SpotX could help Magnite land bigger deals like this in the years to come as other media companies migrate their content and advertising to a digital format.
For the record, I'll reiterate that my favorite CTV stock pick is Disney. However, Magnite is a fast-growing company working behind the scenes that will benefit from all of the media companies migrating to a more modern operating model. It's still a small business too, with a current market cap of $5.7 billion. Trading for under 17 times its own 2020 revenue plus sales from soon-to-be-acquired SpotX, this is a top play on TV streaming.
