Communications services are among the sectors paying the highest price as investors are turning to energy stocks to take advantage of the rapid rise in gas and oil.
Negative sentiment towards communication services stocks is also affecting shares of Magnite (MGNI). Over the past three months, shares of the Los Angeles, California-based advertising company have fallen more than 55%, severely underperforming the market.
As the factors driving energy prices fade, the market’s attention will shift back to other stocks and be more balanced across sectors. Then Magnite’s shares should bounce back as the stock operates in a market with solid fundamentals.
It is difficult to predict when this will happen, as the current energy crisis appears to be caused by long-standing issues. Essentially these are geopolitical tensions, the mismatch between fossil fuel supply and demand, and the war in Ukraine.
Magnite operates what the company says is “the world’s largest sell-side advertising platform.” Magnite’s technology enables publishers to monetize their content on all screen types and using all available formats, including Connected TV (CTV) and online video, as well as display and audio.
The company estimates that the platform enables agencies and brands from all parts of the world to run billions of advertising transactions every month. I am bullish on the stock.
Q4 2021 Results
As a result of good organic growth combined with the strategic acquisition of SpotX (a Denver, Colorado-based global video advertising and monetization platform) and SpringServe (a New York-based platform that provides technology for video advertising), the last quarter of 2021 was notable from both a revenue and earnings perspective.
In the fourth quarter of 2021, the company reported a 37% year-over-year increase in pro forma earnings of $0.26 per share, beating the consensus median estimate by $0.01 on total revenue of $161.3 million.
Total revenue, up nearly 100% year-over-year, beat analysts’ median forecast by $21.5 million.
Looking Ahead
Looking ahead to the first quarter of 2022, the company expects total revenue, excluding the contribution from the two acquisitions, to be between $105 million and $109 million, versus analysts’ forecasts of $106.3 million to $107.47 million.
Financial Condition
The financial situation requires intense work to move from distressed zones (possible bankruptcy within a few years), as indicated by an Altman Z-Score of 0.54, to safe zones.
Booming Digital Advertising Market
In a globalized world that relies heavily on technology, digital advertising is inevitable for businesses looking to seize every growth opportunity to increase sales and profits over time.
According to estimates published by GlobeNewswire on November 18, 2021, the global digital advertising market was worth more than $374 billion in 2020, growing at nearly 16% annually since 2015.
Additionally, information from GlobeNewswire suggests that this market should grow more than 15% annually to approximately $764 billion in 2025 and nearly 14% annually to $1.45 trillion in 2030.
For now, it looks like Magnite is looking to grow through non-organic strategies.
The latest quarterly report suggests that this strategy is already yielding significant results as sales would have been more than 10% lower had it not been for the two acquisitions of SpotX and SpringServe.
Wall Street’s Take
For the past three months, seven Wall Street analysts have issued a 12-month price target for MGNI. The company has a Strong Buy consensus rating based on five Buys, and one Hold.
The average Magnite price target is $23.83, implying 96.3% upside potential.
Conclusion
The stock is poised for a significant recovery that could occur if investor interest turns back to other stocks.
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