What happened

Shares of Magnite (NASDAQ:MGNI) stumbled out of the gate on Thursday, plunging as much as 18.5%. As of 2:08 p.m. EDT, the stock was still down by 17.9%.

The digital advertising specialist reported third-quarter earnings that raised several red flags for investors.

So what

Magnite's revenue of $131.9 million was up 116% year over year, but that included the results of several acquisitions consummated over the past year. Excluding traffic acquisition costs and on a pro forma basis, revenue grew by just 26%.

A young couple cuddling on the couch watching television.

Image source: Getty Images.

Magnite has focused heavily on connected TV (CTV) advertising over the past year. Its sales in that area rose by 51% on a pro forma basis, and represented 38% of revenue.

Profits continued to be elusive. On a GAAP basis, Magnite generated a loss of $0.18 per share, far worse than its $0.10 per share loss from the prior-year quarter. On a non-GAAP basis, the company generated adjusted earnings of $0.14 per share, up from $0.06 per share in the prior-year quarter.

To give those numbers context, analysts' consensus estimates had called for revenue of $116.62 million and adjusted earnings of $0.18 per share.

In the conference call to discuss the results, CEO Michael Barrett threw more cold water on the proceedings, citing supply chain-related ad cancellations that occurred late in the third quarter and continued into the fourth quarter. He also noted that the company faces tough comps in 2021 due to last year's political campaigns.

Now what

It wasn't just the financial results that were driving Magnite lower on Thursday. Analysts from Royal Bank of Canada cut their price target on the shares from $40 down to $36, though they maintained their buy rating on the stock. 

At the midpoint of its fourth-quarter guidance range, Magnite is forecasting revenue of $140 million for the period. That's slightly below the $142 million consensus expectation of analysts.

Mounting losses, the cancellation of ad campaigns, and tepid fourth-quarter guidance all combined to drive Magnite's shares lower Thursday. Time will tell whether these issues will moderate over time or if this is the beginning of an ominous trend for the company.

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