Magnite (MGNI 1.73%) and The Trade Desk (TTD 4.15%) are two of the largest independent ad tech platforms in the world.
Magnite, which was formed by the merger of the Rubicon Project and Telaria in 2020, is the largest independent sell-side platform (SSP) for digital ads. The Trade Desk sits at the opposite side of the ad supply chain as the industry's largest independent demand-side platform (DSP). SSPs help digital media owners manage their own ad inventories, while DSPs enable ad agencies, advertisers, and trade desks to bid on those ads.
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Magnite and The Trade Desk aren't competitors, but they both expect to profit from the secular growth of the connected TV (CTV) market through ad-supported streaming media services.
The market's optimism for those plans propelled both stocks to their all-time highs in 2021. But today, Magnite and The Trade Desk trade roughly 80% and 40%, respectively, below those historic highs. Should investors consider buying either stock after those precipitous declines?
Magnite faces supply chain challenges
On the basis of revenue that excludes traffic acquisition costs (ex-TAC), Magnite's revenue surged 90% to $416 million in 2021 as it integrated its acquisitions of SpotX and SpringServe to expand its CTV business. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 246% to $149 million, which boosted its adjusted EBITDA margin from 19% to 36%.
During the year, Magnite generated 34% of its ex-TAC revenue from its CTV business, 27% from its desktop business, and the remaining 39% from its mobile business. On an ex-TAC pro forma basis -- which normalizes the year-over-year comparisons for its acquired businesses -- its closely watched CTV revenue increased 52%.
However, Magnite's CTV segment actually experienced a slowdown in the second half of 2021 as supply chain headwinds across the world throttled its ad sales to automakers and other affected sectors. That deceleration, which also affected streaming platform companies like Roku, caused many investors to abandon CTV-related stocks.
Nonetheless, Magnite still expects its ex-TAC revenue to grow at least 20% to over $500 million in 2022, and it reiterated its long-term target for growing its annual ex-TAC revenue by about 25% with an adjusted EBITDA margin of 35% to 40% over the next few years. Analysts expect Magnite's revenue and adjusted EBITDA to grow 29% and 17%, respectively, this year.
The Trade Desk continues to fire on all cylinders
Unlike Magnite, The Trade Desk doesn't report any messy, pro forma numbers because it doesn't rely heavily on acquisitions for growth.
The Trade Desk's revenue rose 43% to $1.2 billion in 2021, accelerating from its 26% growth in 2020, and its adjusted EBITDA jumped 77% to $503 million. Its adjusted EBITDA margin expanded from 34% to 42%.
That growth was mainly driven by its video-based ads. CTV and mobile ads each brought in about 40% of its revenue during the year, while the remaining 15% and 5% came from display and audio ads, respectively.
The Trade Desk doesn't disclose its exact growth rates by each channel like Magnite, but founder and CEO Jeff Green, during its fourth-quarter conference call, said "CTV was once again the largest driver of spend on our platform."
Green also noted that the number of advertisers that spent more than $1 million on CTV ad campaigns had nearly doubled year over year. The upgraded version of its platform, Solimar, has also been boosting its engagement rates by collecting and analyzing more data for advertisers.
As a DSP, The Trade Desk didn't struggle with the same supply chain headwinds which impacted SSPs like Magnite. It hasn't set any long-term growth targets, but analysts expect its revenue and adjusted EBITDA to rise 33% and 20%, respectively, this year.
The valuations and verdict
The Trade Desk is growing faster and more organically than Magnite, and it seems to face fewer near-term headwinds. But its stock is also a lot pricier.
The Trade Desk trades at 21 times this year's sales and 55 times its forward-adjusted EBITDA. Magnite trades at a mere 3 times this year's sales and 11 times its forward-adjusted EBITDA.
That massive gap suggests a lot of growth is already baked into The Trade Desk's stock, while Magnite's stock is undervalued. The Trade Desk might initially seem like a better investment, but I think Magnite is better poised to generate bigger gains in this challenging market for pricier growth stocks.
