MGNI Earnings

I am long a few shares of MGNI, down about 50% and holding (no idea why), but I also need to dig into the report more. Invest wisely.

NEW YORK, Nov. 03, 2021 (GLOBE NEWSWIRE) – Magnite (Nasdaq: MGNI), the world’s largest independent sell-side advertising platform, today reported its results of operations for the quarter ended September 30, 2021. Third quarter 2021 financial results of Magnite represent the combined performance of Magnite, SpotX, and SpringServe. Third quarter 2020 comparative numbers do not include results from SpotX and SpringServe, unless noted as pro-forma.

Recent Magnite Highlights

Revenue of $131.9 million for Q3 2021, up 116% from Q3 2020

Revenue ex-TAC(2) of $114.1 million for Q3 2021, up 89% from Q3 2020 and up 26% on a pro-forma basis(1)

Revenue ex-TAC(2) attributable to CTV of $43.1 million for Q3 2021, up 290% year over year, and up 51% on a pro forma basis(1)

Net loss of $24.3 million in Q3 2021, for a loss per share of $0.18, compared to net loss of $10.5 million, for a loss per share of $0.10 in Q3 of 2020

Adjusted EBITDA(2) of $40.0 million in Q3 2021 representing a margin of 35%(4), as compared to Adjusted EBITDA of $13.7 million in Q3 of 2020

Non-GAAP earnings per share(2) of $0.14 for Q3 2021, compared to non-GAAP earnings per share of $0.06 for Q3 of 2020

Operating free cash flow(5) in Q3 2021 was $34.0 million

SpringServe acquisition closed on July 1, 2021


Revenue ex-TAC(2) for Q4 2021 to be between $138 million and $142 million

Revenue ex-TAC(2) attributable to CTV for Q4 2021 to be between $52 million and $56 million

Adjusted EBITDA operating expenses(3) to be between $79 and $81 million for Q4 2021

Total capital expenditures for Q4 2021 to be approximately $8 million""

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I’m pretty disappointed in this result from MGNI. I must have misunderstood their guidance from last Q very badly. I thought they guided to 50% organic growth, which in fact came in at 26%. 26% growth just doesn’t cut it for me (or frankly, for pretty much anyone focused on hypergrowth companies).

I have to do some soul searching and reviewing of the least release for how I missed this. They must have guided for 50% CTV growth instead. I just didn’t dig deep enough and thus I secured a pretty negative outcome holding from the last call (when I bought back into MGNI) until now. It looks like I’m going to take a 25% loss in total on this position.

While I like they are growing fast in CTV (at 50% organic growth), CTV is less than half the revenue today. It will be some time before that equates to dramatically faster growth at the top line.

For MGNI it is a complicated story with multiple acquisitions at play. One lesson from this board is that complicated stories usually don’t work out. The complication contributed to my lack of understanding of the business prospects. I’ll revisit MGNI once CTV becomes a larger portion of the revenue and they have a shot at hypergrowth status. The story around all the acquisitions should play out as well (although my bet is they keep doing them which will make it eternally more complex).

As to Roku, they are still struggling in adding new customers. Last 4 Qs active user growth: 10%, 4%, 3%, 2%. They are growing ARPU nicely (6%, 11%, 12%, and 9%) but its just hard for me to believe they will grow at rapid rates if they can’t add new customers.

Advertising stocks haven’t done well for me. Saul listed that as a bias of his, and I am starting to feel the same way. Although I can’t blame the sector for my own inability to analyze a company properly.



While there weren’t any huge upside surprises announced, I don’t consider this quarter or the outlook to be any disaster. I won’t be surprised if tomorrow it trades a lot better than the after-market reaction (-10%) today. After seeing Teladoc go down -5% after hours last week and then shoot up almost +10% the next day, nothing will really suprise me these days, especially when it comes to companies that are liklely to be long term winners and have been selling at low valuations (like MGNI and TDOC in my opinion)

It’s safe to say that the quarter finished weaker than management was expecting. They came in almost exactly at the midpoint of both their Total ex-TAC revenue and at the midpoint of the ex-TAC CTV revenue. I imagine they thought they were sandbagging more than that when they gave the guidance three months ago and expected to beat the high end.

As a reminder, “ex-TAC” is essentially a way to better compare their revenue on an apples to apples bases from period to period because most of their revenue, under US GAAP accounting has to be recognized net of “traffic acquisition costs” (the amounts paid to the streaming services for their ad inventory space) and some has to be recorded gross (more so with SpotX than their legacy companies). So ex-TAC essentially nets the gross revenue so everything is compared on a net basis (just showing Magnite’s commissions/take rate)

They did call out the supply chain issues impacting advertising this quarter, essentially the same thing that SNAP mentioned, so I wasn’t surprised. Basically, some brands couldn’t get enough product onto the shelves to make it worthwhile to spend money to advertise it, since what little is available is selling through with out any marketing necessary. And they called out auto and travel as still having a long way to go to get back to “normal” levels of advertising, given some of the challenges that both of those industries have been having in this environment.

And of course last year there was a massive amount of political spending, which will be much less this year. The political spend will have a bigger impact in Q4, but it also impacted Q3 and was called out on the earnings call.

Next quarter, sequentially, they are forecasting:

Total ex-TAC revenue $138-142m in Q4 (vs $114m in Q3)
CTV ex-TAC revenue $52-56m in Q4 (vs $43m in Q3)

Now don’t get too excited by that sequential growth because, remember, this is advertising, and Q4 during the holiday season is always the seasonally strongest quarter of the year and Q1 is usually a negative sequential quarter after Q4. At least it’s a little clearer going forward because both Q3 and Q4 have a full three months of both SpotX and springserve, so it’s a true proforma comparison going forward (unlike Q2 which had two months of SpotX, which closed 4/1, and no Springserve, which closed 7/1, vs Q3 with three months of both)

I would bet they are being extra conservative with Q4’s guidance, but I could certainly be wrong about that.

I only got to half-listen to the earnings call. They didn’t have any new streaming service deal announcements to make, but when asked by one of the analysts, it sounded like there would be some coming soon. Powering more and more big services is going to drive the growth going forward, in addition to simply riding the wave of the overall movement toward streaming.

They did very explicitly say that the Apple IDFA security changes are expected to have no impact on their business, consistent with what they have been saying all along. In the past they’ve suggested that it changes such as these and the deprecation of third party cookies could potentially be a good thing, or net positive, for Magnite, unlike a company like Trade Desk where both changes are likely to have at least some negative impact on the business.

I’m not sure if I got the quote exactly right, but I believe Magnite management said on today’s call:

It is clear that IDFA removal has affected some industry players. I want to be clear, we are not one of them despite seeing well over 80% adoption of IOS 14.5 on our platform. Our business doesn’t participate in app downloads and we have very little social ad exposure.

I expect that the next couple of quarters could continue to be uninspiring to some shareholders as they continue to integrate the three big companies (Rubicon, Telaria and Spotx) and one small company (Springserve) which doesn’t happen overnight, so I won’t be surprised if the stock stays relatively flat hovering around $30 or so through the first half of 2022. However, I do think as we get into the second half of 2022 and some of the computer chip issues clear which will lead to more auto sales (and other products), and travel advertising picks up, and the supply chain problems clear, I think we are also going to see an absolutely huge amount of ad spending for the midterm elections next autumn, probably unlike anything in history for a non-presidential year. At the same time the waive of traditional linear cable TV will shift further toward streaming and CTV. If they announce a few new big deals to add more major content providers/streaming services too, that could all just magnify the growth further.

I wouldn’t blame anyone for shifting from Magnite to add more Upstart or something like that to their portfolio right now which probably has more short term potential especially over the next six months or so and then reevaluate MGNI later in ’22. But I still think the longer term Magnite story over the next 3-5 years is going to play out really well and I think some of the headwinds they are facing right now (which aren’t major by any means as their growth engine CTV business still grew by 50% pro forma last quarter) will be temporary.

So I agree that this was hardly any surprise blowout quarter, which would have been nice, but it also doesn’t make me less excited about their potential over the next few years. At the same time, we may have a couple dull quarters to get through before things clear up and give Magnite an opportunity to really show what they can do.

Once a transcript comes available, I’ll give it a read and see if anything else noteworthy is there that I missed when listing the call live.