Take a moment to review ad technology. This is a combination of advertising and digital technology, and it is becoming more and more popular in our online age. Ad technology is the foundation for the success stories behind many of the market’s biggest players, including giants like Google and Facebook, as well as streaming services.
But wait, you say, all of these companies have fallen in recent months — and it’s true. The overall deteriorating economic situation has pushed them back hard, and ad technology stands at the center of that storm.
Much of the digital world makes money off of advertising, and as inflation soars and consumers reduce spending, advertisers have faced an increasingly difficult environment. The result – lower ad spend, fewer customer interactions, fewer clicks, less revenue. It is a vicious circle that is dangerous and not easy to break.
And yet, ad technology is still attractive to investors. Regardless of the headwinds, it’s clearly here to stay; Most of our lives are conducted online so we can’t get rid of it easily – which means ad technology will evolve. By some estimates, the sector is worth $20 billion by 2021, which will reach $42 billion by 2027.
Regardless of economic conditions, growth at this rate presents opportunity. It may not come easy, and may not come to everyone, but the opportunity will. That’s the basic truth behind the RBC analyst Matthew Swansonon the ad technology market, as he writes, “As we entered 2023, we reviewed forecasts and delved deeper into macro indicators and surveyed 500 consumers to gain insight. about the relative momentum of the market. current macro environment. Following this analysis, in 2023 we do not expect to see high tides wash away all ships in 2021, nor do we expect to see unexpected headwinds in demand. Demand created a challenge for all companies in 2022. The uneven environment in 2023 will create opportunities for companies to differentiate themselves…”
We’ll now follow Swanson’s lead and look at two of the ad tech stocks he recommended. Follow TipRanks data, both of which are rated Buy, with significant upside potential. Here are the details, along with some of Swanson’s comments.
Magnite (MGNI)
We’ll start with Magnite, a sell-side ad technology platform that advertises itself as, for some reason, the world’s largest independent company in its field. Magnite boasts a market capitalization of $1.4 billion and totaled over $468 million in revenue last year. The company’s platform allows online publishers worldwide to sell digital advertising across a full range of channels and formats, including CTV, audio, desktop, and mobile. In the tough marketing environment of 2022, the value of the company’s stock fell 40% – but that was mitigated in part by a strong 65% rise in early November.
The jump came when the company released its 22nd quarter third-quarter earnings figures, which beat forecasts, while it reported reasonable guidance for the fourth quarter. On the top line, the company brought in revenue. revenue of $145.8 million, with an 11% increase year-over-year. At the bottom line, Magnite has a non-GAAP EPS of 18 cents, beating both predictions and the previous year’s figure (14 cents each) by 28%.
As a guide, the company announced expectations for full-year 2022 non-TAC revenue above $510 million and full-year free cash flow in excess of $105 million. We should note here that Magnite shows a consistent pattern of growth in financial ratios throughout the calendar year, from the lowest point in Q1 to the highest point in Q4; Following that model will allow the company to easily meet its published full-year guidance numbers.
Assessing Q3 results and looking ahead, RBC’s Swanson highlights the strong performance and positive voices the company generated even in the face of difficult macro conditions.
“Magnite has delivered strong results, especially in the macro context as they seek to build consistency with improving DV+ results and the secular headwinds surrounding CTV,” the analyst said. “. “Amid the challenging macro backdrop, management remains optimistic about the long-term growth rate of the CTV business, up 29% YoY vs +19% QoQ, now accounting for 44 % of total revenue outside TAC. Management feels well positioned to benefit from the AVOD CTV inventory line in 2023, noting new partnerships with Fox, Vizio and Kroger as well as expanding partnerships with LG, Disney and GroupM.”
Consistent with these comments, Swanson continues to rate the stock as Better (or Buy) and his price target, set at $15, implies a 42% gain in the coming months. (To see Swanson’s achievements, click here.)
The 4 recent analyst reviews of Magnite stock include 3 Buy vs 1 Hold, for a Strong Buy consensus rating. The stock has an average target price of $13.75 and a current trading price of $10.59, with an average upside potential of 30% by the end of 2023. (See Magnite’s stock forecast at TipRanks.)
PubMatic (PUBM)
Next on our list is PubMatic, another independent sell-side ad technology company. PubMatic works with both online content creators and digital advertisers, providing purpose-built tools to connect automated advertising systems to mobile apps, websites and platforms video. The company can claim some impressive statistics, with their platform generating 491 billion ad impressions, 1.5 trillion advertiser bids, and 6.9 petabytes of data processed each day. day.
PubMatic’s last reported quarter was Q3 22 – and the results were mixed. The company posted 45% year-on-year growth for omnichannel video, which resulted in an 11% year-on-year increase in total revenue – to $64.5 million, below the consensus estimate of 2.49 million dollars.
GAAP net income came in at $3.3 million, showing a 5% profit margin, and the company generated $28.1 million in cash from operations. At the bottom line, the company’s net income converted to GAAP EPS was $0.06, down 75% year-on-year while falling short of Street forecasts – an unusual turn of events, as Pubmatic has made a habit used to consistently beat EPS expectations. EPS also fell on non-GAAP measures, from 30 cents per diluted share in Q3 FY21 to 22 cents in Q3 FY22, though that number was 2 cents higher than analysts had predicted. analysis.
However, PubMatic is well-positioned to deal with the drop in earnings, as the company reported ending the third quarter of 2022 with no debt and $166.1 million in cash and liquid assets.
We can check back with RBC’s Matthew Swanson, who reminded investors of the headwinds driving Pubmatic ahead: “Key drivers include: 1) SPO (supply curve optimization). response), had a large pipeline and accounted for more than 30% of total activity in Q3 compared with 10% at the beginning of 2020, as management focused on integrating Martin into the platform; 2) CTV, up 150% over the same period because having the program will have the ability to accelerate in a challenging macro; 3) addressability remains a key focus with long-standing trends around cookie loss and consumer privacy; and 4) retail media that management sees as a natural extension of its GTM platform, product building, and movement.
In Swanson’s view, this setup justifies a Good Performance (Buy) rating on the stock, and he also offers a stock price target of $24 to suggest upside potential. in one year is 87%. (To see Swanson’s achievements, click here.)
Overall, 7 recent analyst reviews of this stock, broken down into 5 Buys and 2 Holds, support a Moderate Buy consensus rating. The shares are priced at $12.81 and have an average target of $19.71, implying a potential 54% gain this year. (See PubMatic’s stock forecast at TipRanks.)
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Disclaimer: The opinions expressed in this article are those of prominent analysts only. Content is used for informational purposes only. It is very important that you do your own analysis before making any investment.
