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This Stock Has More Than 60% Upside, Thanks to Roku Opening Its CTV Ad Inventory, Analyst Says

Author: Anusuya Lahiri | March 22, 2023 03:27pm

Needham analyst Laura Martin reiterates Magnite Inc (NASDAQ:MGNIwith a Buy and a $15 price target. Needham's clients shared five things they find most interesting (i.e., key learnings) about MGNI after discussing with the brokerage.

Roku, Inc (NASDAQ:ROKU) recently stated that it would open its CTV ad inventory to all DSPs. MGNI is the primary beneficiary of this pivot because MGNI is Roku's SSP. 

So all Open Internet DSPs will plug into MGNI to get access to Roku's unsold CTV ad inventory. MGNI will get a 7% take rate, Martin estimates.

Martin believes Spring Serve is additive to MGNI's existing customer take rates. Martin estimates that MGNI's CTV ad server, Spring Service, has a take rate of about 1% of total ad spending. However, for MGNI, this 1% of ad spending is additive to the standard 7% take rate on CTV ad spending, so it has very high incremental margins. 

CTV moves power away from the traditional Walled Gardens of Alphabet Inc (NASDAQ:GOOGLGoogle, and Meta Platforms Inc (NASDAQ:META) and toward the public Open Internet companies Martin covers. 

The analyst sees "value leakage" into the Open Internet ad tech companies through a middle-ground called "Private Marketplaces" as CTV moves power away from traditional Walled Gardens. 

CTV ad inventory can be biddable within private marketplaces like mobile or desktop. The CTV segment favors the largest Open Internet software providers, owing to the complex tech stack requirements of CTV.

MGNI has committed to shutting down SpotX's old CTV platform by mid-year 2023. 

In January 2023, MGNI laid off 6% of its workforce, or 55 FTEs, out of its 950 total employees. MGNI believes it will achieve additional cost savings after the old CTV platform is shut down in mid-2023, driving margin and FCF upside in 2H23.

MGNI disclosed that CTV revenues were $214 million, 42% of total net revenues of $514 million for FY22A. The analyst estimates that CPMs for CTV are about ten times higher than average mobile and desktop CPMs, but MGNI's take rate on CTV is about 7%, vs. a 14% take rate for mobile and desktop, on average. 

By implication, although MGNI's take rate on CTV is about 50% below mobile and desktop because CTV's CPM is ten times higher, MGNI is getting paid much more per unit of ads that it sells for CTV, driving upside growth ever faster as CTV becomes a larger share of MGNI's net revenues, Martin believes.

The analyst reiterates MGNI's estimates for 1Q23, FY23, and FY24.

Price Action: MGNI shares traded lower by 1.32% at $9.36 on the last check Wednesday.



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