2023-04-13 13:36:05 ET
Magnite ( NASDAQ: MGNI ) and PubMatic ( NASDAQ: PUBM ) are leading the ad technology space, jumping 8.2% and 7% respectively Thursday, as B. Riley initiated coverage of both stocks at a Buy rating.
Magnite is the biggest independent supply-side ad platform, and "following a transformative merger in 2020, a rebrand, and a series of CTV-focused acquisitions, Magnite aims to become the go-to independent ad tech partner for [connected TV] publishers," analyst Daniel Day said.
The company's "concentrated bet" on CTV is a "high-reward" proposition that's not without risks, he said -- but also a significant potential market with ad dollars still in the early days of shifting from linear to streaming.
Meanwhile, amid big streamers' ad-tier push and "credible rumors" that Netflix is pursuing buy-or-build in ad-tech, "Magnite is in play to eventually win Netflix’s ad serving and/or SSP business, if not become an acquisition target," he said, adding the most likely suitors for Magnite's CTV business would be Netflix ( NFLX ) or Disney ( DIS ).
Such an acquisition would likely mean a spinout of Magnite's DV+ assets, but in any case, the more mature segment "looks to be back on track," with losses starting to reverse. Day has a $15 price target on Magnite ( MGNI ), implying 60% upside.
As for PubMatic ( PUBM ), the market looks "overly focused on the near-term slowdown in ad spend" -- but while that will pressure top-line growth for a bit, it will also likely speed consolidating spend onto the supply-side platforms that have the scale to negotiate supply path optimization with large buyers, Day said.
"With zero debt, a healthy cash balance, solid through-cycle [free cash flow] generation, a relatively fixed cost base likely providing operating leverage once ad spend recovers, and a $75M share repurchase authorization in place to take advantage of the dislocated stock price, we believe PubMatic offers among the best risk/reward profiles in the ad tech sector," Day said.
He has a $20 price target on PubMatic, implying 35% upside.
Magnite last month tapped a new chief technology officer .
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Magnite, PubMatic soar as B. Riley starts bullish coverage