In recent mergers and acquisitions, most of the listed companies' stock prices have risen steadily, while the tight cash flow brought about by acquisitions often continues for many years.

But Magnite (NASDAQ: MGNI) is a bit different.

At the beginning of the year, MGNI, a merger of the online advertising platform Robicon Project and CTV adware platform Teleria, stepped on the cusp of rapid development in the CTV market. However, the release of Demand Manager, a lightweight seller-side ad matching application, made it seem that MGNI would become a “TTD for seller advertising.”

Today, MGNI's stock price has increased 961% compared to 3 years ago, making it one of Needham & Company's recommendations. For the basic situation of MGNI, please refer to the MGNI Basic Report. This article will focus on analyzing MGNI's business model from the following four aspects:

• A dormant seller advertising platform

• MGNI's three operational challenges

• The bright racetrack

• The future and hidden concerns of MGNI

• summed

A dormant seller advertising platform

Unlike competitor TTD, which chose to dominate buyer advertising platforms, Magnite (later MGNI for short) chose seller advertising platforms — helping sellers monetize inventory ads and improve their ability to monetize advertising content.

If a buyer-side advertising platform assists brand owners and advertisers to select suitable platforms to place advertisements and promote an increase in sales volume; then, seller-side advertising platforms assist advertising inventors to find brand owners and advertisers that match their advertising activity, and improve the efficiency of selling advertising inventory.

However, due to the large number of industries, channels, and inventory types, this market has always been fragmented, and there is an urgent need for a hegemon to emerge. Looks like MGNI will be “The One.”

In terms of ad inventory types, MGNI also provides a diverse inventory for ad buyers and media owners to choose from. Among them, the most well-known ones are offline advertising, audio advertising, and video advertising. They are sold in the following two forms on sellers' advertising platforms:

a) Priority inventory direct sales: similar to the internal market (PMP for foreign abbreviation, Private Market Platform)

b) Public auction market: Through different channels, advertising inventory is publicly sold to the market and obtained by bidding (OMP for short in foreign countries, Open Market Platform)

However, MGNI's main revenue comes from advertisers' buying and selling advertising activities on MGNI's online matchmaking platform: maintaining the company's main source of revenue by extracting commissions in both directions.

Inventory advertisement sellers attract interested ad buyers to bid and auction by posting content targets on the MGNI platform. Advertisement buyers who win the target can use stock ad fragments to create their own advertisements, or pay sellers for the number of impressions of ready-made ads.

Also, if ad sellers need to track the effectiveness of retail advertising on the platform and track user behavior to optimize ad inventory, they can use paid data analysis software recently launched by MGNI.

With the update of Apple's privacy policy, in the future, mobile apps will not be able to track user behavior through commonly used indicators such as commonly used LBS, keyboard input information, etc., while MGNI will re-position user behavior through other factors such as historical user viewing data, ad broadcast time, etc., and has become a new generation of precision marketing tools for advertisers.

MGNI's three operational challenges

In operation, MGNI needed to solve the three operational challenges that advertisers are most concerned about:

1. Complex construction of programmatic advertising systems: Since procedural advertising platform processing requires matching a large amount of sales data, in the later stages, as the needs of buyers and sellers become more and more refined, the construction of the original procedural advertising platform system becomes more and more complicated, leaving buyers and sellers at a loss;

2. The degree of response has declined, and it is difficult to visualize trading demand: As the fragmentation of trading demand has further occurred, the response speed of the platform has declined. It is difficult for buyers and sellers to develop personalized tools based on the original platform to visualize data to evaluate advertising effectiveness, and there are situations where people pay more due to the number of false impressions;

3. Difficulty in searching ad inventory: Massive advertising content is pouring in, and it is difficult for buyers and sellers to search for the advertising content they want to evaluate the effectiveness. The variety of advertising plans extends the decision-making chain of advertising buyers and reduces user experience and desire to pay.

MGNI establishes technical barriers through open source platforms and mergers and acquisitions to help advertisers solve these operational problems and improve user experience.

A) System construction is complicated, how can the slow response speed be solved?

In the early days, MGNI did not develop its own technology. In 2017, through the support of community technology developers in the free open source platform Prebid, MGNI buyers and sellers can use plug-ins on this platform to simplify the usage process of the MGNI ad matching system. Advertising buyers and sellers can use the tools of the Prebid open source platform to mine, integrate, and optimize fragmented information and search optimization.

Subsequently, in 2019, through the acquisition of RTK, another header bidding solution provider, MGNI integrated its technology and personnel into its new paid product Demand Manager to improve the monetization efficiency of advertising sellers.

Demand Manager is a lightweight app that can help ad sellers quickly connect with different ad buyers and simplify the advertising inventory transaction process. This app was built using Teleria's technical team. If it relied on Robincon Project's original technology, it would take 2-3 years.

B) How to solve the ad inventory search dilemma?

In 2017, through the acquisition of search optimization company nToggle, MGNI significantly optimized inventory search results, improved the decision-making efficiency of advertising buyers, filtered out irrelevant information from DSP, and reduced MGNI's own search costs.

In 2018, in order to help buyers reduce excessive bids and improve matching efficiency, MGNI released an EMR system — an algorithm that compares and matches auction prices based on historical market bids to reduce excessive bidding by buyers, calm high market prices, and promote a healthy platform environment for buyers.

In 2019, through a stock exchange merger and acquisition model, MGNI merged with Telaria.Inc, which specializes in matching advertising inventory transactions in the CTV market based on geographical location and auction formats, making MGNI the world's largest independent seller advertising platform, far surpassing other competitors, and forming a global seller advertising trading network.

However, the effectiveness of MGNI on seller-side advertising platforms has been recognized by the giants. In the third quarter, 8 of the company's top 10 DSP customers have doubled their investment in the MGNI platform and achieved rapid growth in the new year. Demand from platform users to send CTV ads increased 57% over the same period. Disney, Hulu, and the short video news Newsy have publicly acknowledged the positive effects of the MGNI platform on many occasions.

Meanwhile, the number of advertisers willing to use Demand Passenger to optimize advertising results has also increased 2.5 times. “With the popularity of online sports and information in the CTV field, according to Emarket's forecast, next year, 60% of CTV advertising inventory will be monetized through programmatic advertising technology. This growth momentum will better help partners achieve profit growth.” COO Katie Evan said.

In the future, MGNI will focus on a simpler and more efficient CTV advertising platform, as well as providing more advertisers with better ad inventory. MGNI profit for the fourth quarter is expected to reach 72-75 million US dollars.

The bright racetrack

The pandemic caused the CTV market, which few people paid attention to, to explode intensively in 2020.

According to eMarketer research, in the mainland of the US alone, CTV advertising consumption reached US$8.11 billion in 2020. It is expected to grow to US$11.36 billion by 2021 and reach 18.29 billion by 2024, and the market size will nearly double.

As residents' income expectations decline further, more and more households are joining the ranks of more affordable online streaming viewers, further increasing the ROI of streaming advertising.

And another race track on which MGNI is located — the programmatic advertising market is also growing rapidly. Research agency MAGNA predicts that the size of the global programmatic advertising market will grow from 44 billion dollars to 75 billion in 2023, and the CAGR is expected to reach 14%.

In 2019, thanks to the increase in the platform's advertising revenue and higher commission revenue, its total profit reached 156 million US dollars, an increase of 25% over the previous year; its advertising revenue exceeded 1.1 billion US dollars, an increase of 12.6% over the previous year, and the commission rate reached 14%.

Furthermore, with the successful completion of mergers and acquisitions, MGNI's advertising revenue for major customer groups all achieved considerable growth in the third quarter of 2020.

Among them, technology companies' advertising commission revenue achieved an annual growth rate of 176%, DTC (direct sales to consumers) advertising commission revenue achieved an annual growth rate of 159%, and CPG (FMCG) advertising commission revenue achieved an annual growth rate of 86%, enabling MGNI's third-quarter profit to achieve a 50% annual growth rate, successfully assisting advertising inventory sellers to more effectively monetize their advertising inventory.

Meanwhile, automotive, retail, technology, DTC, and CPG, as major growth areas in the CTV sector, will bring a steady stream of revenue to MGNI in the future. In the past three quarters, advertisers participating in DTC have reached an annual growth rate of 130%, bringing new impetus to MGNI's user growth.

The future and hidden concerns of MGNI

Needless to say, MGNI seems to be naturally stepping on the rhythm of the times.

There have been two rapid increases in MGNI in history. In 2013-2014, thanks to the rapid rise in smartphone shipments and the rapid growth of the mobile app market, MGNI seized the growth opportunities of mobile mobile websites and mobile apps to achieve rapid growth in mobile app advertising revenue.

2013Q4-2014Q4 had a profit growth rate of 48.70%, and the profit growth rate of 2014Q4-2015Q4 had a blowout of 124.74%.

At the beginning of 2016, MGNI moved to a streaming advertising program, hoping to help ad buyers get a share of the streaming market. Now, after 3 years of hiding its light under a low profile, MGNI has also ushered in its own highlight this year.

However, while MGNI's stock price continues to jump, other analysts in the market are clearly extremely uncertain about its future development.

In the third quarter conference call, analysts were extremely concerned about the macroeconomic downturn, the influence of leading media owners on the MGNI platform, and the risks and concerns brought about by changes in Apple's privacy policy.

Since MGNI's early business mainly covered advertising channels for offline sellers, the revenue of this original main business was affected by the macroeconomic downturn, and many traditional industries keen on running offline advertisements chose to drastically reduce their budgets.

Although MGNI has made a high-profile shift to the CTV field, the “lack of a leg” is always painful.

In the third quarter conference call, leading institutions such as Disney, the extent of the partnership between Hulu and MGNI has been repeatedly raised by various investment institutions.

When Laura Anne Martin (the analyst who discovered MGNI at Needham & Company) asked, MGNI CEO Michael G Barret repeatedly emphasized that the CTV market, where leading institutions are located, will maintain a strong growth trend in the short term.

Meanwhile, the company's good advertising platform service has also been recognized many times by leading agencies on public channels. The addition of leading agencies has clearly helped MGNI integrate the scattered seller advertising market and become a future giant in the industry.

However, changes in Apple's privacy policy have sounded the bell for transformation in the digital advertising industry, which is accustomed to tracking user behavior.

In the past, the industry was accustomed to obtaining mobile device permissions through cookies and IDFA open access to track user habits and achieve accurate marketing.

Today, Apple users will have the power to decide whether to allow “ID for Finders” (IDFA) to track their behavior, which is certainly a thunderbolt from the blue for most advertisers.

Meanwhile, MGNI plans to change the existing data analysis model by tracking data from its own platforms, which not only protects the privacy of retail viewers, but also provides better solutions for advertising buyers and sellers, thus deepening its own moat.

Although MGNI has prepared enough cash bullets to compete with competitors for new and stock markets through affordable traffic, this strategy will delay the company's future acquisition plans.

However, MGNI CEO Michael G Barret is still full of confidence.

This senior media personality, who has served as an executive at AOL, Disney, and Yahoo, expects MGNI to become TTD in 2020 in the future. The latter is already close to monopolizing the entire advertising demand side platform, reaching a market value of 36 billion US dollars.

Its excellent management team and being the only multi-channel seller advertising platform in the world have also made some market participants believe that MGNI will grow 3 times or even 10 times in the future.

Looking at it now, MGNI's heavy investment in CTV will pay off in 2021.

summed

1. MGNI, a merger of Robicon Project and Teleria, has achieved a 961% increase in stock price over the past 3 years. Teleria's addition enabled MGNI in CTV advertising technology to save 2-3 years of costs. The company is motivated to act as a “TTD for seller-side advertising”.

2. MGNI, the predecessor of MGNI, was the Robicon Project, which was founded in California in 2007. The founding team left in 2017, then Michael G Barret, a former executive at Disney, Yahoo, etc., became CEO. Michael G Barret's connections in the media industry and his expertise in financial management have brought new growth trends to MGNI 2020 mergers and acquisitions.

3. MGNI's main business revenue mainly comes from running seller-side advertising platforms with two-way commissions. The recently developed Demand Customer payment application will become an effective tool to help sellers of advertising inventory quickly monetize, becoming a new growth point.

4. The risk point of MGNI is that it will still be difficult to achieve profit in the short term, the continued presence of leading advertisers will have a great impact on the company's good future growth, and the revision of privacy regulations will present a new round of challenges in tracking user behavior.

5. NeedHam & Company's recommendation contributed to the rise in MGNI in the current period. Had it not been for Lauren Martin's recommendation, this company would probably be dormant for a long time.