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Why Magnite Stock Pulled Back Again Today

By Jon Quast - May 11, 2021 at 4:13PM

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Its first-quarter results were what everyone expected, but Wall Street is growing more pessimistic in its outlook on stocks.

What happened

Shares of sell-side advertising-technology company Magnite (MGNI 2.76%) pulled back again on Tuesday, following the company's financial report for the first quarter of 2021. This comes in the wake of the stock's sharp sell-off yesterday. As of 3 p.m. EDT, the stock was down 4%. Shares have now dropped 55% from their all-time high reached earlier this year. 

So what

Magnite's Q1 results were what the market was expecting. The company had guided for revenue of $58 million to $62 million and delivered revenue of $60.7 million. Furthermore, management had said revenue from connected TV (CTV) would have a strong growth rate and, accordingly, Magnite's CTV revenue was up 32% from what Telaria and The Rubicon Project (the two companies that formed Magnite) posted combined last year.

A man lays his head down on a table with a falling stock chart in the background.

Image source: Getty Images.

The Q1 results didn't include Magnite's recent acquisition of competitor SpotX. For its part, SpotX generated revenue of $31.2 million (which excludes traffic acquisition costs), up 45% year over year. Moreover, 63% of SpotX's Q1 revenue came from CTV. This segment of its business is growing at a 70% clip, which is more good news for Magnite shareholders.

However, these results weren't enough for Wall Street. According to The Fly, analysts with Craig-Hallum and Susquehanna lowered their price targets on Magnite stock today. Craig-Hallum cut its price target from $72 to $50 per share while Susquehanna went from $80 to $46 per share.

Now what

The lowered price targets illustrate something important for investors. When the stock market is booming, we tend to become overconfident in our investments. But when stocks fall, we tend to become more pessimistic in our outlook. That goes for retail investors and professional analysts alike.

For example, just this year, the analyst with Craig-Hallum raised the price target for Magnite stock from $25 to $45 per share, then to $63 per share, and yet again to $72 per share. Of course, that was back when the stock was going up. Now that it's been cut in half, the lowered targets for Magnite and others are pouring in.

Of course, on a broader level, this analyst still sees Magnite as a top player in the emerging CTV industry and believes it will be a winner. That's really the kind of thinking more befitting buy-and-hold investors. CTV is a growing industry and Magnite is an increasingly important player in the space -- even more so now with its acquisition of SpotX. Knowing what the price per share will be in a month or a year isn't something we can reliably predict. But focusing on the long-term story can keep us from giving up on quality companies even when the bottom falls out, as it has with Magnite.

Jon Quast owns shares of Magnite, Inc. The Motley Fool owns shares of and recommends Magnite, Inc. The Motley Fool has a disclosure policy.

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