Magnite (MGNI -2.76%) stock took flight in 2020 following its creation by merger of digital ad firms The Rubicon Project and Telaria, but returns have moderated this year. Shares are flat in 2021 with just a couple of months left to go in the year. 

That doesn't mean Magnite can't still be a long-term winner. In fact, the company thinks it is still early on in realizing its potential in the advertising technology space and unveiled some ambitious plans during its recent investor day presentation. Over the next five years, Magnite management thinks the company can sustain an average revenue growth rate topping 25%, and generate profit margins in excess of 40%.

If it can pull it off, that could make Magnite a fantastic buy for the next half-decade stretch.

Two pairs of feet wearing socks sitting in front of a TV.

Image source: Getty Images.

Growing market, growing market share

Part of the rationale behind Magnite's merger -- and the subsequent acquisition of SpotX and SpringServe this year -- was to increase scale. As with all advertising, the quality of information on a marketing campaign's audience and the reach of an ad's distribution are important metrics, and Magnite is a small player in an industry worth hundreds of billions of dollars in annual spend (the company thinks it will generate revenue of "well over $500 million" in 2022). But following its flurry of M&A activity, this technologist offers its users some world-class tools with a global reach.

This is particularly the case with connected TV (CTV), parlance for all of the streaming TV services that have gone live in recent years. Traditional TV (cable and broadcast) has been undergoing disruption for years, and now nearly all U.S. households have at least one streaming subscription service. But monetization up to this point has mainly revolved around the subscription model.

Magnite believes ad-based streaming is the future. One of the reasons consumers are cutting the cord on cable is cost. However, when you start adding up the subscription fees for all the different ad-free premium streaming services (Netflix, Disney+, etc.), the monthly bill can really add up. Thus, many households are opting for cheaper (or in some cases, free) ad-supported streaming tiers. This is where Magnite comes in.

As more traditional TV migrates over to modern streaming, Magnite expects annual CTV spending to grow to about $50 billion per year over the next five years (currently $9 billion). After purchasing SpotX, Magnite currently processes over $2 billion in CTV ad spend, a roughly 20% to 25% market share. But given its newfound scale (Magnite is the largest independent sell-side ad platform serving publishers), it thinks its market share can reach 30%.

Thus CTV is one of the big reasons Magnite thinks it can sustain at least 25% revenue growth in the coming years. 

Not just TV but mobile too

Of course, Magnite isn't only playing in the CTV sandbox. It operates as a sell-side platform for publishers in other digital video formats as well, including mobile and desktop ads -- collectively called DV+ at Magnite. 

A fast migration to programmatic ads (where the computers handle the dealmaking) makes this another area of growth for the company. Programmatic ad buying and selling solves pain points for both publishers and marketers. It's more than just automating the process to boost marketing yield (the effectiveness of an ad campaign) and ad time profitability. Operating within a defined set of rules, programmatic can also help protect individual user privacy, all while helping advertisers target audience groups that actually might be interested in seeing the advertisement.

Eventually, Magnite thinks the entire digital ad industry will be governed by programmatic buying and selling. With its expansive toolset in this department and large scale spanning the globe (Magnite receives trillions of ad requests every month), Magnite thinks its DV+ business will also be a growth driver, albeit not as fast as its CTV segment.

The company cited a report from research firm Magna that anticipates DV+ ad spend to grow to $63 billion a year by 2024, compared to $42 billion today. Magnite's goal is for its technology platform to command about a 20% DV+ market share at that time, up from about 9% now.

Where will Magnite be in five years?

Alphabet's (GOOGL -1.05%) (GOOG -1.00%) Google and Facebook (META -2.15%) have enjoyed a virtual duopoly in the digital ad space, but publishers and advertisers are increasingly looking for a trusted third party to help with marketing campaigns and user data. That has helped companies like Magnite (and its buy-side technology counterpart The Trade Desk (TTD -1.52%)) make inroads into the industry in recent years. 

The door to ad activity on the web continues to get cracked open, and Magnite has ample opportunity ahead of it in the next five years as more ads migrate to digital formats and as older digital ad formats migrate to programmatic. With a market cap of just $4.1 billion as of this writing, Magnite is still a tiny player in this corner of the technology world and stands to be a far larger firm in five years' time.