What happened
Shares of Magnite (MGNI 0.46%) fell 34.8% in November, according to data from S&P Global Market Intelligence. The programmatic digital ad buying platform delivered earnings results that missed analysts' expectations, and also warned of soft trends and difficult comparisons in the current quarter.
Adding additional pressure, high-multiple growth stocks were hurt when Federal Reserve Chairman Jerome Powell indicated the Federal Reserve may taper its bond purchases faster than expected, which would tighten financial conditions.
Image source: Getty Images.
So what
In the third quarter, Magnite reported headline revenue of $131.9 million, growing 116%, but that figure incorporates acquisitions the company made over the past year, and doesn't deduct traffic acquisition costs (TAC). Revenue excluding TAC was a lower $114.1 million, and pro forma revenue growth, which normalizes for the acquisitions, was only 26%. Adjusted (non-GAAP) earnings per share was $0.14, also just shy of expectations.
On the conference call with analysts, CEO Michael Barrett attributed some of the weakness to supply chain logjams, which led to ad cancellations by customers. After all, there's no point in advertising if there aren't products available to sell. Meanwhile, travel-related ad spend remained lower than pre-pandemic levels by double digits. Finally, the company will be lapping difficult comparisons to the year-ago quarter due to this year's lack of political advertising.
Additionally, all growth stocks got hammered toward the end of the month, as Powell indicated the possibility of more rapid fiscal tightening amid high inflation. The higher interest rates go, the lower the intrinsic value of future earnings. Since Magnite makes minimal profits today, it fell further, along with other similar types of growth stocks.
Now what
After this month's plunge, Magnite is down nearly 74% from 52-week highs. So, should investors put it on their buy lists?
Currently, Magnite trades at just over five times sales and around 21 times next year's earnings estimates, which is not that demanding relative to other highly priced software companies. Furthermore, it counts most of the top ad-supported streaming TV players as customers. That bodes well for the future, if and when advertising picks back up.
I've never owned Magnite stock, but its recent plunge has me interested. I think it's worth further investigation to play a potential 2022 advertising pickup after the stock's terrible November.
