Magnite: Key Discussion Points Ahead Of The Q4 Results

Rainer Puster

The world's largest omnichannel SSP (Supply broadside advertizing platform) operator- Magnite, Inc. (NASDAQ:MGNI) will people its Q4 results connected nan February 22, post-market hours. In this article, we'll attraction connected a fewer important themes that investors should beryllium mindful of up of that event.

Earnings Event - What To Consider

• Over nan past 3 years, Magnite's way grounds during net play has been reasonably decent, pinch a fewer blemishes each now and then. Basically, complete nan past 12 quarters, it has beaten EPS thoroughfare estimates 66% of nan time, pinch an mean hit of $0.03

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• For Q4-22, nan header numbers that investors should beryllium watching retired for are a revenue fig of $153.5m (implying 8% yearly growth), and an EPS fig of $0.32 (implying 24% yearly growth)
• MGNI's Q4 gross typically tends to use from higher advertisement budgets devoted to vacation purchasing. The company's topline will besides apt get a 3% sequential uplift successful Q4 connected relationship of governmental related spending. Magnite is besides very good positioned up of different SSP peers connected relationship of its impetus successful nan CTV abstraction which gives it thing of a counter-cyclical edge. Contrary to celebrated belief, successful nan US, an ad-supported subscription package doesn't harm viewership levels, and it looks for illustration an overwhelming mostly of streamers will apt prosecute economical ad-supported streaming packages successful nan look of a recession. With a number of partners connected nan cusp of launching CTV advertisement businesses, nan maturation runway for Magnite looks comparatively promising moreover successful nan midst of challenging economical conditions.

Magnite

• In Q3, Magnite's OPEX guidelines ($83m) was comparatively good controlled, increasing only 2% sequentially. Whilst little workforce and office-related costs are welcome, location were immoderate trading costs that were deferred, nan effect of which will beryllium felt successful Q4. On nan different hand, statement that Magnite continues to trim its costs guidelines good into Q1-23.
• Magnite's superior allocation priorities astatine this shape of nan rhythm are to attraction much connected indebtedness salary downs. One of nan admirable facets of nan Magnite communicative is that its guidance has been very accordant successful bringing down nan nett leverage ratio (short and semipermanent indebtedness adjusted for cash, complete TTM Adjusted EBITDA) for 5 consecutive quarters now. In Q2-21 it stood astatine 6.2x, and astatine nan extremity of Q3-22 it stood astatine 2.6x. They surely won't remainder connected their laurels and 1 would expect further nett leverage advancement successful Q4 arsenic nan ratio is still supra their target of little than aliases adjacent to 2x trailing EBITDA.

Quarterly Presentation

• The EBITDA image for Magnite complete nan adjacent 12 months is apt to beryllium rather challenging (for much specifications mention to nan adjacent conception of this article), truthful it is imperative that Magnite continues to show ample moving superior ratio to make cash. Note that nan company's moving superior turnover has been supra 4.1x for a while now, nan champion it's been successful 5 years (for discourse statement that Magnite typically only generates moving superior turns of little than 3x).

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• As mentioned earlier pinch indebtedness servicing taking precedent, investors shouldn't expect overmuch support from buybacks, moreover though Magnite still has $28.3m worthy of shares to beryllium purchased by December 2023. It's worthy noting that successful Q3, Magnite didn't indulge successful immoderate buybacks, and this has seen its buyback output halve successful caller periods.

YCharts

• During nan Q4 call, Magnite's guidance will besides apt talk up nan imaginable of 'Magnite Streaming'- nan company's CTV and OTT monetization level which is good poised to utilization nan secular tailwinds associated pinch nan growth of streaming viewership. This SSP was launched only a mates of weeks ago.

What Do The Forward Valuations Look Like?

Magnite's financial outlook complete nan adjacent 12 months doesn't look excessively compelling. Whilst nan business is connected people to present 20% maturation levels astatine nan revenue, EBITDA, and EPS levels for FY22, successful FY23 it won't spot immoderate operating leverage pinch EBITDA maturation (flat growth), and EPS maturation (+3%), coming successful little than gross growth, which will besides only beryllium successful nan single-digits (7.5%).

Investors should besides statement that MGNI's semipermanent EBITDA separator target is betwixt 35-40% but nan FY23 numbers will apt driblet good extracurricular that range, by 250bps (much of this will beryllium H1 weighted, connected relationship of higher tech stack costs linked to moving 2 abstracted CTV platforms during customer migrations)! Even if FY24 should spot a bounce backmost to nan target range, statement that it will still beryllium little than what was seen successful FY21.

YCharts

YCharts

However, investors should besides see that a mates of years back, Magnite had an elevated EV (Enterprise value) of conscionable beneath $7bn; a 33% correction successful nan EV since then, suggests that overmuch of nan weakness successful nan financials is already factored in. So overmuch so, that nan guardant EV/EBITDA aggregate (based connected FY23 numbers) looks very favorable. Indeed Magnite's existent aggregate of ~13x represents a 34% discount complete its 5-year mean aggregate of ~20x.

YCharts

Closing Thoughts - What Do The Technicals Look Like?

Investing

On nan method beforehand arsenic well, things are looking reasonably promising for MGNI. We tin spot that betwixt August to October 2022, Magnite built a guidelines betwixt nan $6-$8 levels (area highlighted successful yellow). Then successful November, we saw a large breakout followed by a little pullback till mid-Jan. In effect, nan guidelines statement had coalesced into a bullish emblem shape (area highlighted successful green). Now up of net results, we've seen immoderate much bullish momentum travel done pinch nan banal now intriguingly perched conscionable beneath nan $15 levels, a area it grounded to clear aggregate times successful Q1-22. Clearly, that's a tricky terrain to overcome, and nan expertise to break from location will dangle connected what MGNI tin present during nan Q4 net event. If Q4 tin service arsenic a useful catalyst, statement that location does not look to beryllium immoderate awesome guidance until nan sub $20 levels.

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MGNI's allure is besides boosted by nan truth that it offers bully risk-reward comparative to its peers from nan Russell 2000. Despite nan caller rise, statement that nan comparative spot ratio comparing Magnite and nan Russell 2000, is still astir 50% little than nan mid-point of its life-long range.

Investment research, chiefly oriented towards uncelebrated/under-covered stocks and ETFs, crossed North America, Europe and Asia. Seeks to harvester some basal and method disciplines while making an investment/trading proposition.