Magnite (MGNI 1.82%) and PubMatic (PUBM +2.47%) are direct competitors in the advertising-technology space. Both companies are supply-side platforms (SSPs), meaning they partner with publishers to sell their supply of ad slots to advertisers.
While both Magnite and PubMatic have been good at adding new customers in the past year, there's one account I doubt either will secure anytime soon. As it turns out, Vox Media believes it doesn't need them.
A risk for SSP ad-tech companies
Vox Media's portfolio includes magazines like New York, websites like SBNation, a lineup of podcasts, and even video content. According to the company, it's a top-10 media outlet with a monthly audience of over 130 million people. Needless to say, this would be an account that Magnite and PubMatic would love to have.
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But they won't have it anytime soon. On June 7, Vox Media announced it's launching its own SSP. To be clear, the company has been active in the digital ad space since 2016 when it launched Concert, a product aimed at helping smaller publishers with advertising. Therefore, Concert SSP is a continuation of these previous efforts.
It shouldn't be surprising. After all, Vox Media is partially owned by NBCUniversal, which is owned by Comcast. And Comcast is another media company that isn't interested in services from independent SSPs. The company acquired its own ad-tech solution in 2014 when it purchased FreeWheel for $360 million.
In short, Magnite and PubMatic don't only have to outcompete each other. They also must convince publishers to use their services. But as we've seen, sometimes publishers, like Vox Media and Comcast, develop in-house solutions. And there's nothing stopping current Magnite and PubMatic customers -- especially big, deep-pocketed ones -- from developing their own tech in the future.
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What this means for investors
Before Magnite and PubMatic shareholders push the panic button, let's keep things in perspective. Gaining and retaining customers doesn't seem to be a problem for either company so far. For example, Magnite has secured top-tier accounts like Disney, Roku, Tubi, Discovery (now part of Warner Bros. Discovery), and more. For its part, PubMatic is working with 176 connected-TV publishers as of the first quarter of 2022, up from just 80 publishers in the same quarter of the prior year. Moreover, its customers spent 40% more on average in Q1 than they did in the first quarter of 2021. Therefore, as we can see, both companies are doing fine when it comes to their customers.
However, while we shouldn't panic from Vox Media's announcement, we shouldn't sugarcoat things either. After all, developing an in-house SSP solution is far more logical for publishers than developing technology for the other side of the market: demand-side platform (DSP) technology, which includes companies like The Trade Desk (TTD 1.09%). SSP technology is more ancillary for publishers. DSP technology would be a venture further away from a publisher's core competency.
Furthermore, SSPs are more susceptible to customer-concentration risk than DSPs because there are fewer potential customers of consequential size. For example, Yahoo! accounted for 17% of PubMatic's revenue in 2021. In Magnite's case, just its top two customers combined to account for 36% of its total revenue. In other words, if any of these big players developed their own in-house solution, it would be a big deal for Magnite and PubMatic.
The Trade Desk doesn't have an individual client that accounts for 10% or more of its billings. Granted, it does directly compete with one of the biggest companies in the world in Alphabet's Google. However, the DSP market is larger than the SSP market. And for all of these reasons, I'd say The Trade Desk probably has a larger competitive moat than either Magnite or PubMatic.
This doesn't mean that Magnite and PubMatic are bad stocks to buy. In fact, I think PubMatic is a particularly good stock to buy now. But all stocks -- even good buys -- come with inherent risks. And all investors need to adequately assess the risks before plunking down their cold, hard cash to buy shares.
Going forward, I believe this is something for Magnite and PubMatic shareholders to watch. Will other publishers work on developing their own SSP platforms? I don't personally think that's a likely outcome right now. But it's a potential outcome to be aware of nonetheless.
