Magnite Investor Day

First, as a side note, Magnite announced yesterday that they are now the preferred SSP for the big sports-oriented streaming service, fuboTV.…

These are exactly the type of deals I want to see, following on their deals with Disney, Discover, etc. that are already in place.

2021 Investor Day

I watched most of the Magnite Investor Day today. It further increased my expectations for the company as a business, and as an investment, in the future.

I assume they will post a replay of the event on their investor relations page, if they haven’t already…

A few notes I jotted down during the presentations. Most of what is in parentheses is my own commentary.:

-Expect “well over $500m revenue in 2022” (based on where they are already, this goes without saying)

  • at least +25% revenue growth rate long term (more on that below, I expect it will be much much higher)

-CTV margins now over 30% run rate

-Today Programmatic DV+ (display, video, including mobile etc and all non-CTV types of advertising) is about two-thirds of the programmatic market and CTV is one-third. In the “next several years” they expect it to look more like three-quarters CTV and one-quarter DV+. DV+ will also be growing during these next years in terms of total $/TAM, despite dropping from two-thirds of the programmatic market to one-quarter. That says a LOT about where the CTV market size is expected to be heading

-Today Google is of course dominant in DV+ and Freewheel in CTV

Five years from now, Magnite aspires to:

  • 15-20 Billion ad spend via Magnite (remember their revenue is not the whole ad spend, although they do bill and collect the full ad spend from customers, they only record their “take rate”, essentially thier commission percentage which they don’t share publicly for competitive reasons, as revenue)

  • Magnite’s CTV market share to grow from 20-25% today to 30%

  • Magnite’s DV+ market share to grow from less than 10% today to 20%

  • They said that research from both The Trade Desk and Magnite continue to show that most consumers prefer to pay less and watch ads, instead of paying more to be ad-free (consistent with, e.g. what Hulu has said in the past that the large majority of their users prefer to save $5/month and watch ads, but Hulu generally makes more than $5/month from the ads so they make more money from users that take the discount than from higher monthly fee ad-free users)

  • They went through all of their business lines and expected industry growth rates for each line, essentially concluding that Magnite would see +23% revenue growth per year over the next three years just from expected industry growth rates alone, assuming they don’t grow their market share at all (but per the aspirations above, they expect to grow their market share significantly over that same period).

  • I’ll jump ahead to one of the Q&A questions which pertained to the last few bullet points here about future TAM and Magnite market share and possible growth rates. One of the analyst questions essentially said “do you really expect to be 30% of a $50 Billion CTV market five years from now?”. To which Magnite management essentially responded (not an exact quote but how it came across to me) by saying that these goals are ‘aspirational’ for sure…but yeah, we do think we will get there…and if we do, it will lead to revenue growth rates much higher than the 25%/year we’ve stated. (depending what you believe their take rate/commission % is on the ad spend, this could easily mean higher than 50%+ CTV revenue growth for the next five years. And this is just their CTV business. They also expect their DV+ business to grow, as the DV+ TAM should also grow and they are aiming to more than double their current DV+ market share too.

  • they said to “expect continued improvement in our adjusted gross margin over time”

  • about 50% of costs are variable to sales, the rest are pretty fixed and will scale with rising revenue

  • The flow through of revenue to adjusted EBITDA is now about 45% and they expect to be greater than 50% in the future. They later said that they are now raising their adjusted EBITDA margin target to 35-40% now, up from prior target of 30-35%. (I need to dig in and better understand the difference between the “flow through” vs the “adj EBITDA margin”, as both sound to me, on the surface, as a ratio of adj EBITDA to revenue?)

  • They collect from cusotmers in advance of paying out the related expenses for ads, (somewhat like a shorter term version of “float” that insurance companies benefit from holding cash paid for premiums until claims are paid out) so as revenue grows, Magnite’s cash balances are expected to grow a lot too (on top of any profits they hold onto), some of this is will just be holding funds lag timing.

  • The showed a chart of the last four years operating cash flow
    2018 negative
    2019 $6 million
    2020 $21 million
    2021 $97 million estimate

This too is expected to grow substantially along with revenue and ebitda in future years

There was some discussion, including on a response to Laura Martin from Needham’s question about take rates expected to be lower in the future, to which management stated that although take rates probably will be lower, the volumes and dollars spent will be so much higher that the take rate $ dollars should grow at a very high rate even if the % of spend isn’t as high as it is today. Hard to really try to quantify since they don’t publicly share their take rates (apparently when companies previously shared take rates publicly, it led to pricing wars that crushed margins to ad tech, which is why most companies don’t tell us what they are these days)

CEO Michael Barrett answered another one of the questions by saying that the Hulu-type of subscription model looks like it “has won”, with a high monthly priced ad-free tier, a mid-priced (some ads) tier, and then a low-priced (lots of ads) tier. He specifically said that he expects Netflix to eventually get into this hybrid (some users pay less and watch ads) too, which I’ve noted in the past Jeff Green (Trade Desk CEO) has been saying for years despite Netflix historically always saying they’ll never have an ad-supported tier. This is the first time I’ve heard someone other than Jeff Green explicitly say this, that I can remember. I bet they’re right, although I’m sure it will be a few years down the road.

That’s about it. I always come away from Magnite wanting to own more, despite it already being one of my biggest holdings



Mekong -

Thank you sincerely for posting such helpful notes and perspective on Magnite’s investor day. To me their progress, coupled with undeniable industry tailwinds (CTV, programmatic advertising, SSP as strategic enabler for publishers), position Magnite for major growth and accompanying valuation expansion moving forward.

In a short period of time, Magnite has secured an expanding list of customer partnerships (Disney, Discover, FuboTV, etc), grown their end to end product capabilities (SpotX, SpringServe), become a leader in adopting and advocating UID 2.0 with The Trade Desk; all of which has positioned them to be the only end to end SSP globally in a programmatic advertising market that stands to experience immense growth moving forward as you stated.

I feel that Magnite’s current valuation @ <$4B is a screaming steal with all of this in place plus the forthcoming growth drivers and revenue/profit potential you aptly and specifically outlined in your summary. Like you, I have been invested in MGNI since $9/share in 2020 and do not plan on selling a single share for years. In my opinion this is a great example of how a growth story can create enormous wealth for its long term investors.

Long MGNI >20%