Adoption Of Programmatic Solutions By Netflix And Disney Will Improve Future Prospects

Key Takeaways

• Growth from CTV and expanded partnerships with major media companies will significantly boost Magnite's future revenues and market presence.
  
• Successful adoption of curation capabilities and commerce media partnerships will enhance revenue growth and expand Magnite's market share and margins.
  
• Strategic investment risks, regulatory changes, and competition in CTV and emerging formats may impact Magnite's growth, margins, and revenue stability.

Catalysts

Operates an independent omni-channel sell-side advertising platform in the United States and internationally.

• Magnite's ongoing strong growth in Contribution ex-TAC from CTV, driven by increasing programmatic adoption from major players like Roku, Netflix, and Disney, is expected to bolster future revenues.
  
• The expanded partnership with Disney, including programmatic solutions and access to live sports and new markets, is projected to increase revenue contributions significantly through 2025.
  
• Growth in live sports programmatic advertising, with prospects expanding into more sports and partners, is anticipated to provide a significant revenue boost in the coming years.
  
• The adoption of Magnite's curation capabilities, which have already shown over 100% revenue growth year-over-year, is expected to drive higher yields and significantly expand market share, positively impacting margins.
  
• Success in Commerce Media, exemplified by the partnership with United Airlines, and the expansion of ClearLine, is projected to be a long-term growth driver, enhancing both revenues and earnings.

Magnite Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Magnite's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.6% today to 14.1% in 3 years time.
• Analysts expect earnings to reach $110.6 million (and earnings per share of $0.72) by about January 2028, up from $17.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $133 million in earnings, and the most bearish expecting $-11.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.2x on those 2028 earnings, down from 141.2x today. This future PE is greater than the current PE for the US Media industry at 14.2x.
• Analysts expect the number of shares outstanding to grow by 2.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.66%, as per the Simply Wall St company report.

Magnite Future Earnings Per Share Growth

Risks

• The ongoing industry shift toward curation on the sell side, driven partly by signal loss due to privacy changes, could impact revenue growth if Magnite is unable to effectively leverage its omnichannel footprint and technology to capitalize on this trend.
  
• Magnite faces significant competition in the CTV space from established players like Netflix and Disney, as well as continued pressure from direct connections and take rates, which could negatively affect margins if they've overleveraged a reliance on partnerships for growth.
  
• Pressure on non-political ad spend and volatility in areas like food and beverage, health and fitness, and other weaker verticals could lead to unpredictable revenue trends and impact earnings stability.
  
• The reliance on strategic investments to expand capabilities, such as into live sports and emerging formats like native and digital out-of-home, presents execution risks that could impact growth projections and net margins if these investments do not yield expected returns.
  
• Potential macroeconomic factors and changes in the regulatory landscape, particularly regarding Google's SSP business, could bring uncertainties and risks that may affect Magnite's strategic positioning and financial performance.

Valuation

• The analysts have a consensus price target of $19.19 for Magnite based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $22.0, and the most bearish reporting a price target of just $15.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $782.3 million, earnings will come to $110.6 million, and it would be trading on a PE ratio of 32.2x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of $17.36, the analyst's price target of $19.19 is 9.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.