Magnite Q3 23’ Investment Thesis Update

Executive Summary

Thesis I: Magnite’s CTV Business is Still in Early Stages of Growth

Macroeconomic Influences: Vulnerability in the managed service segment due to economic conditions.
CTV Advertising Dynamics: Challenges due to major broadcasters managing direct sales, yet potential for Magnite in evolving market conditions.
Services for Large Publishers: Advanced SSP services, SpringServe platform enhancements, and strategic initiatives for premium transactions.
Innovations in CTV Market: Introduction of ClearLine and Magnite Access, and partnership with FreeWheel.

Thesis II: DV+ Business is Poised to Rebound from Headwinds Driven by Platform Enhancements

Revenue Growth in DV+: Over 10% year-over-year revenue increase, indicating a strong market position.
Strategic Adaptability: Demonstrated resilience and adaptability amidst industry-wide challenges.
Platform Enhancements: Focus on technological advancements and customized solutions for publishers.
Client Attraction and Retention: Efficient ad performance and tailored solutions driving new client acquisition.

Thesis III: The Programmatic Advertising Market is Massive and Expanding

Ecosystem Dynamics: In-depth look at the various components of the programmatic advertising ecosystem.
Industry Transformation: The significant impact of automation, efficiency, and data-driven decisions in revolutionizing the advertising industry.
Digital Advertising Trends: Analysis of post-pandemic digital advertising trends and their economic implications.
CTV Advertising Growth: Insights into the rise of CTV advertising and its growing significance in the market.
Growth Projections: Projections for the growth of programmatic advertising in the US and globally.

Magnite’s strategic positioning in the early-stage growth of CTV business, coupled with the rebound potential of its DV+ business driven by platform enhancements, sets it up for significant growth in the expanding programmatic advertising market. The market perspective overlooks Magnite’s potential, focusing excessively on short-term challenges rather than the larger structural opportunities. This gap in market perception versus actual business potential indicates that Magnite’s stock is highly undervalued, with a likelihood of substantial growth as the market begins to recognize its strategic strengths and growth trajectory in the evolving advertising landscape.

Thesis I: Magnite’s CTV Business is Still in Early Stages of Growth

Thesis Summary

1. Macroeconomic Influence and Industry-Specific Challenges

Managed Service Vulnerability: Magnite's managed service segment is highly sensitive to broader economic conditions, as shown by its downturn since June.
Advertising Campaign Declines: Reduced ad campaigns in sectors like automotive and media/entertainment, due to economic conservatism and specific industry issues, directly impact Magnite’s revenues.
Example Scenario: A major automaker cutting ad spend in response to an economic slowdown would significantly affect Magnite’s managed service income, given its higher take rate.

2. Cautiousness in TV Upfronts

Reserved Sentiment: A cautious approach in TV upfronts, particularly outside sports and live events, reflects advertiser hesitancy amid economic uncertainties.
Impact on Magnite: This trend challenges Magnite’s traditional reliance on long-term advertising commitments.
Opportunity in Market Shift: Magnite sees a potential shift to more versatile ad buying in the scatter market, suggesting adaptability to capture new growth avenues.

3. Connected TV Advertising Dynamics

Major Broadcasters and Streaming Services Shift: They are increasingly managing direct programmatic sales, altering the CTV ad landscape.
Magnite's Position: While challenged, Magnite retains significance in the CTV ecosystem and can evolve as the market stabilizes.

4. Enhancing Services for Large Publishers

Value-Added SSP Services: Offering advanced auction capabilities to large streaming services, potentially increasing ad transaction efficiency and profitability.
SpringServe Platform Expansion: Enhancing ad delivery and targeting for large broadcasters.
Private Marketplace Creation: Facilitating premium transactions for large publishers and agencies.
Seller’s Path Optimization (SPO): Streamlining the ad selling process for major entertainment publishers.

5. Innovations in Connected TV Market

ClearLine: Easing the transition from linear TV to programmatic advertising, capturing new ad spend segments.
Magnite Access: Providing data and identity solutions, aiding in sophisticated audience targeting.
Integration with FreeWheel: Simplifying ad management for large media companies, enhancing operational efficiency.

Impact of Macroeconomic Factors on Managed Service Segment

The recent downturn in Magnite's managed service segment since June, largely influenced by macroeconomic factors and exacerbated by industry-specific issues, vividly demonstrates the business's exposure to external economic pressures. The clear relationship between the decline in significant advertising campaigns, especially in the automotive and media and entertainment sectors, with wider economic conservatism and specific industry difficulties, highlights the business model's high sensitivity to market fluctuations and external disturbances such as strikes or industry recessions. Given that the managed service business possesses the highest take rate, these disruptions significantly affect the company's financial performance, characterizing it as a potentially volatile but lucrative business area.

For example, imagine a scenario where a major car manufacturer, traditionally one of Magnite's significant managed service clients, decides to drastically cut down its ad spend in response to economic slowdown and consumer spending reduction. This decision would directly impact Magnite's revenues, especially given the higher take rate from such managed services. This situation illustrates how the managed service segment's reliance on big-ticket advertising campaigns makes it susceptible to broader economic and sector-specific trends.

Challenges and Opportunities in TV Upfronts
There has been cautiousness seen in TV upfronts, excluding sports and live events, which adds another layer to this narrative, mirroring a reserved sentiment among advertisers. Upfronts typically reflect the advertising sector's outlook and budget allocations for the upcoming year. The pullback here suggests not only a generally conservative approach by advertisers amid economic uncertainties but also points to a strategic shift in how ad budgets are being distributed. Magnite's managed service division, which traditionally relies on these long-term advertising commitments, could find itself under additional strain as advertisers opt for more flexible spending patterns.

However, amidst these challenges lies an opportunity anchored in strategic adaptation and the potential reorientation of ad budgets. Magnite anticipates that while there's a more guarded approach in upfronts, overall ad budgets might not dwindle, indicating a possible shift towards more versatile, short-term buying in the scatter market. For instance, if Magnite can pivot to leverage its strengths in dynamic areas like streaming services and programmatic advertising effectively, it could capture new growth avenues. Here, speed and adaptability in responding to market changes are crucial. Magnite's capability to adjust and potentially profit from these shifts highlights their strategic foresight and ability to tap into emerging market trends.

In essence, Magnite's managed service business, though currently reflecting the broader economic and industry-specific turbulence affecting the advertising industry, is also poised to adapt and evolve. The expected trend towards more dynamic advertising platforms such as streaming and programmatic advertising offers routes for resilience and growth. This scenario emphasizes the importance of agility and market awareness in managing current challenges.

Changing Dynamics in Connected TV Advertising

Additionally, the rapid adoption of ad-supported models by major broadcasters and streaming services, along with their shift towards managing more direct programmatic sales, has significantly altered the Connected TV (CTV) advertising landscape. This swift strategic pivot by large publishers has not only flooded the market with a new volume of ad inventory but also altered the dynamics of how programmatic advertising operates. For a company like Magnite, which has traditionally thrived in partnerships with smaller publishers, this shift presents both a challenge and an opportunity.

With this market realignment, Magnite's current position, though different in scale and nature, remains significant within the broader CTV ad ecosystem. As this period of initial disruption begins to normalize, and the ad inventory introduced by these large publishers becomes a standard part of the online landscape, Magnite's role could evolve further. The company's depth of experience in programmatic advertising and its established relationships with a diverse range of publishers could become even more valuable as the market stabilizes.

Enhancing Services for Large Publishers

Magnite's strategic approach in addressing the evolving dynamics in the Connected TV (CTV) and broader programmatic advertising markets, particularly with large publishers, involves a combination of enhancing existing services and introducing new, innovative solutions.

To counterbalance the challenges of engaging with large publishers at a lower take rate, Magnite can utilize its advanced Supply-Side Platform (SSP) services to drive higher value transactions. For instance, when dealing with a major streaming service, which traditionally manages a significant portion of its ad sales in-house, Magnite could offer its proprietary auction-running capabilities. This service would introduce more competitive bidding and potentially higher-quality demand, thereby increasing the efficiency and profitability of each ad transaction for the publisher. By offering these value-added services, Magnite could negotiate for a higher take rate, given the additional revenue and efficiencies brought to the table.

The expansion of the SpringServe platform represents another strategic move. Consider Magnite incorporating SpringServe’s advanced video ad serving technology for a large broadcaster’s new digital platform. This technology could allow for more granular targeting and efficient ad delivery, significantly improving ad performance and viewer experience. This improvement in ad delivery and effectiveness could justify an increased take rate for Magnite due to the additional value provided.

Magnite's strategy of creating direct private marketplaces for large publishers and agencies also plays into this approach. In a scenario where Magnite establishes a private marketplace for a major news network and several premium brands, the marketplace would facilitate efficient, transparent transactions. The premium nature of this arrangement and the enhanced control it offers to both publishers and advertisers could be leveraged by Magnite to command higher take rates, reflecting the superior value and service quality.

Lastly, Magnite's focus on Seller’s Path Optimization (SPO) can help drive higher take rates with large publishers. By optimizing the advertising pathway for a major entertainment publisher, for example, Magnite can demonstrate its ability to streamline and enhance the ad selling process, leading to better yields for the publisher and more compelling ROI for advertisers. Such optimization showcases Magnite's capability in maximizing ad revenue and efficiency, potentially warranting a higher take rate.

Overall, Magnite's strategy in dealing with large publishers focuses on leveraging its technology and services to enhance value and efficiency in ad transactions. By demonstrating the ability to bring additional revenue and improve advertising outcomes through sophisticated SSP services, innovative platforms like SpringServe, private marketplace facilitation, and SPO initiatives, Magnite can position itself as an indispensable partner to large publishers, justifying higher take rates and strengthening its market position in the evolving digital advertising landscape.

Innovations in Connected TV Market

Magnite's strategic initiatives and innovations in the Connected TV (CTV) market reflect a proactive and multi-faceted approach aimed at boosting its market share and take rate amidst evolving market dynamics and increasing competition.

ClearLine: Bridging Linear and Programmatic
With the launch of ClearLine, Magnite addresses the fundamental shift in advertising spends from traditional linear TV to more dynamic, programmatic channels. This solution is pivotal in enabling agencies and advertisers to transfer their linear TV budgets to programmatic more seamlessly. For example, Magnite might facilitate a large retail brand's shift from traditional TV advertising to programmatic CTV campaigns, enabling more targeted and efficient ad spends. This move not only captures a new segment of ad spend for Magnite but also solidifies its role as a crucial facilitator in the linear-to-digital transition — a transition that is gathering momentum in the CTV space. Here, Magnite's role and utility in this process can justify a higher take rate due to the added value and efficiencies it provides.

Magnite Access: Enhancing Data Utilization
In the CTV landscape, data and privacy concerns are increasingly paramount. Magnite Access offers comprehensive data and identity solutions, catering to this need. For instance, if a major streaming platform utilizes Magnite Access to refine its audience targeting while adhering to privacy regulations, it exemplifies Magnite’s capability to handle complex data environments. This utility in managing sophisticated and compliant targeting strategies could persuade larger broadcasters to prefer Magnite's services, potentially increasing the take rate due to the advanced data solutions provided.

Integration with FreeWheel: Streamlining Ad Management
The integration with FreeWheel represents Magnite’s endeavor to boost operational efficiency for its clients. For a large media company that combines Magnite’s programmatic expertise with FreeWheel’s robust ad management solutions, the result could be a more streamlined and effective advertising operation. This integration can attract higher volumes of ad spend, as it simplifies the advertising process for large broadcasters and publishers, making Magnite’s platform more indispensable and possibly enhancing its take rate.

Thesis II: DV+ Business is Poised to Rebound from Headwinds Driven by Platform Enhancements

Thesis Summary

1. Strong Revenue Growth in DV+ Business

Outperforming Market Trends: Magnite achieved an over 10% year-over-year revenue increase in its DV+ business, focusing on mobile and display ads, despite an industry-wide slump in CPMs (Cost Per Mille).
Market Share Expansion: This growth highlights Magnite's ability to capture a larger portion of the market, indicating a significant expansion in market share.

2. Strategic Adaptability and Market Positioning

Market Position Strengthening: Magnite's growth amidst declining CPM rates showcases its strengthened market position and adaptability to challenging conditions.
Example Scenario: A mid-sized online news publisher partnering with Magnite for advanced targeting and optimization capabilities could significantly boost ad revenue, demonstrating Magnite’s efficient and high-value service offerings.

3. Commitment to Platform Enhancements

Distinguishing Services in SSP Market: Magnite prioritizes technological advancements and customized solutions, moving beyond generic services to a strategic, value-driven approach.
Understanding Publisher Needs: This approach signifies a deeper understanding of publisher requirements and a commitment to innovation.
Optimizing Ad Performance: Focusing on platform enhancements, Magnite provides publishers with advanced technology and superior monetization results, essential in the AdTech space.

4. Strategic Agility and Value Delivery

High-Value, Tailored Solutions: Magnite's ability to thrive in a dynamic market is exemplified by delivering tailored solutions that meet specific publisher needs.
Attracting and Retaining Clients: By offering optimized ad performance, Magnite not only retains existing clients but also attracts new ones seeking efficient ways to maximize ad revenues.

Resilience in a Challenging Market

Magnite's impressive over 10% year-over-year revenue increase in their DV+ business, focusing on mobile and display ads, is a noteworthy achievement against the backdrop of the industry-wide slump in CPMs (Cost Per Mille). This growth, amidst a general downturn in pricing, underscores Magnite's strengthened market position and strategic adaptability.

The increase in DV+ revenue, despite challenging market conditions, indicates a significant expansion in Magnite's market share. This isn't just a consequence of overall industry expansion; instead, Magnite is actively securing a larger portion of the market. For instance, imagine a scenario where a mid-sized online news publisher, facing declining revenues from traditional ad setups, partners with Magnite. By tapping into Magnite’s advanced targeting and optimization capabilities, the publisher could see a considerable boost in ad revenue, despite broader industry declines in CPM rates. This highlights how Magnite's strategic focus on technical advancements and customized service offerings for its publishing partners, alongside the consolidation of online video activities, marks a shift towards more efficient and high-value service propositions.

Commitment to Platform Enhancements

Additionally, this growth trajectory suggests that Magnite is successfully distinguishing its services in a crowded SSP market. By prioritizing advancements in technology and customizing their solutions to meet the unique needs of publishers, Magnite moves beyond a generic service offering to a more strategic, value-driven approach. This shift signifies a deeper comprehension of publisher requirements and a commitment to innovation, which are vital in the swiftly changing AdTech industry.

Furthermore, Magnite's emphasis on platform enhancements and optimizations reflects a commitment to providing publishers with advanced technology and superior monetization results. In the AdTech space, where the effectiveness and profitability of ad placements are paramount, the ability to offer optimized ad performance is crucial. This focus not only helps Magnite retain existing publisher clients but also attracts new ones who are looking for more efficient ways to maximize their ad revenues. This scenario exemplifies Magnite's strategic agility and its ability to thrive by delivering high-value, tailored solutions to publishers in a dynamic market environment.

Thesis III: The Programmatic Advertising Market is Massive and Expanding

Thesis Summary

1. Ecosystem Components

Advertisers and DSPs: Advertisers leverage DSPs for efficient ad inventory purchase and targeted audience reach.
Publishers and SSPs: Publishers use SSPs to optimize ad space sales and maximize revenues.
Ad Exchanges and Data Management: Ad Exchanges facilitate buying and selling, while DMPs provide audience insights.
Ad Networks and Ad Servers: Ad Networks aggregate ad inventory, and Ad Servers manage ad delivery.

2. Revolutionizing the Advertising Industry

Automation and Efficiency: Programmatic advertising automates ad buying, making the process faster and more efficient.
Targeting and Personalization: Advertisers can target specific audiences with unprecedented precision.
Data-Driven Decisions: Decisions are increasingly based on data, allowing for refined targeting strategies.
Integration and Optimization: Programmatic advertising integrates multiple channels and enables continuous campaign optimization.

3. Digital Advertising Trends and Economic Factors

Post-Pandemic Digital Surge: The pandemic led to a significant increase in digital advertising due to heightened online activity.
Continued Growth Despite Moderation: Despite some moderation, digital advertising remains resilient, driven by ongoing economic growth.
E-Commerce Expansion: The growth of e-commerce supports increased digital ad spend, with brands competing for online visibility.

4. Rise of CTV Advertising

Personalized and Engaging Ads: CTV advertising offers targeted, engaging video ads.
Shifting Consumer Preferences: The shift towards streaming platforms and AVOD services fuels the growth of CTV advertising.

5. Growth Projections for Programmatic Advertising

US and Global Expansion: Programmatic advertising is projected to grow in the US and globally, driven by video content and CTV.
Economic Indicators Supporting Growth: Positive economic indicators and e-commerce expansion suggest robust future growth for digital advertising.

Programmatic Advertising Ecosystem

The economic ecosystem of programmatic advertising is a dynamic and complex network that thrives on the interplay between technology and strategic market positioning. At its core, this ecosystem is designed to maximize efficiency and effectiveness in the digital advertising space, enabling activities that traditional methods could not achieve with the same level of precision or speed.

Advertisers are the catalysts of this ecosystem, initiating the demand for ad space with the goal of reaching potential customers. They leverage Demand-Side Platforms (DSPs), which offer a significant utility by allowing advertisers to manage multiple ad exchange accounts through a single interface. DSPs enable advertisers to purchase ad inventory efficiently, utilizing data to target audiences with precision and measure the impact of their campaigns in real-time. Without DSPs, advertisers would face a fragmented and cumbersome process, hampering their ability to respond swiftly to market changes.

Publishers, who own the platforms where ads are displayed, like websites or mobile apps, utilize Supply-Side Platforms (SSPs) to sell their ad space. SSPs optimize the sale of inventory, ensuring that publishers maximize their revenues. They provide the essential service of managing ad impressions to garner the highest possible rates and fill rates. Without SSPs, publishers would struggle to manually manage and optimize the sale of their digital ad spaces, leading to inefficiencies and lost revenue opportunities.

The Ad Exchanges act as the digital marketplaces where the buying and selling of ad inventories occur. They ensure liquidity in the market, maintaining a seamless flow of advertising opportunities and bids. This liquidity is vital for the real-time bidding (RTB) process, which would be unfeasible at such a scale without automated exchanges.

Data Management Platforms (DMPs) are the backbone of targeted advertising, analyzing vast amounts of data to inform purchasing decisions. They enable a level of audience segmentation that traditional advertising could never achieve, helping advertisers and publishers to understand their audience more deeply and engage them more effectively.

Ad Networks play a role akin to wholesalers in the traditional economy, aggregating ad inventory from various publishers to sell to advertisers. They simplify the process for advertisers who wish to buy space across a range of publishing platforms, providing reach and efficiency.

The unsung heroes of the ecosystem are the Ad Servers, the technologies that host and deliver ads to users. They enable the scheduling and targeting of ads, ensuring that the right ads reach the right users at the right times. Without ad servers, the delivery and management of online ads would be erratic and uncoordinated.

Finally, Ad Verification and Security Vendors ensure the integrity of programmatic advertising by validating the authenticity of ad placements and protecting against fraudulent activities. They provide the critical service of maintaining brand safety and ensuring that ads reach genuine audiences, which is a monumental task given the anonymity of the digital space.

Revolutionizing Advertising with Programmatic Techniques

Programmatic advertising has revolutionized the broader advertising industry by introducing automation and data-driven decision-making into the process of buying and selling ad space. Here is how it fits into and enhances the larger advertising landscape:

Automation: Programmatic advertising automates the ad buying process, using software to purchase digital advertising, as opposed to the traditional process that involved human negotiation and manual insertion orders. This automation makes the ad buying system more efficient and faster.

Real-Time Bidding (RTB): A significant part of programmatic advertising is RTB, which allows for the buying and selling of ads in real time. This means that advertisers can bid on ad space at the moment a user is viewing a webpage, allowing for the placement of ads that are more likely to be relevant to the viewer.

Targeting and Personalization: Programmatic technology enables advertisers to target audiences using a variety of metrics such as demographics, behavior, location, and even the time of day. This level of granularity was not possible with traditional advertising, which was more of a broad-stroke approach.

Efficiency and Cost-Effectiveness: With programmatic advertising, advertisers can use their budgets more efficiently. They can buy ad space based on the value it provides, which is often determined by the likelihood of the ad meeting its intended goal (like clicks, impressions, or conversions). This ensures that advertising budgets are not wasted on uninterested audiences.

Data-Driven Decisions: The use of DMPs in programmatic advertising means decisions are increasingly data-driven. Advertisers have access to more data than ever before, which can inform their strategies and help them to refine their targeting to reach the right people with the right message.

Scale and Reach: Programmatic advertising gives advertisers access to a global inventory across millions of websites, far beyond what traditional direct deals could achieve. This scale allows campaigns to reach broader audiences more easily.

Transparency and Control: Advertisers have greater transparency into where their ads are being placed and who is viewing them. They also have more control over their ad spend and can make adjustments to campaigns in real time based on performance data.

Integration of Multiple Channels: Programmatic allows advertisers to reach audiences across multiple channels and devices, including desktop, mobile, video, and social media, from a single platform. This integration ensures a cohesive advertising strategy that can adapt to consumer media consumption habits.

Optimization: Continuous optimization is a hallmark of programmatic advertising. Campaigns can be tweaked in real time for performance, ensuring that goals are met and budgets are used effectively.

Inventory Quality and Brand Safety: With advancements in programmatic technology, there are better controls in place to ensure the quality of inventory and protect brand safety. Advertisers can avoid placing ads on non-reputable sites or alongside inappropriate content.

By integrating these functionalities, programmatic advertising serves as the technological and strategic backbone of the modern advertising industry, driving innovation and ensuring that the industry keeps pace with the rapidly changing digital landscape. It complements traditional advertising channels by bringing added precision, efficiency, and effectiveness to ad campaigns.

Digital Advertising Surge and Post-Pandemic Moderation

The surge in digital advertising growth during the pandemic was a direct response to a confluence of factors: heightened online activity due to lockdowns, increased consumer spending power from economic stimuli, and a shift in lifestyles that favored digital consumption. Businesses capitalized on this by aggressively competing for consumer attention, particularly through digital channels like video streaming and Connected TV (CTV), which saw exponential growth. This increased demand for ad space led to a rise in CPM (cost per mille, or cost per thousand impressions), bolstering revenue throughout the digital advertising ecosystem.

As the initial pandemic conditions eased, a natural moderation in digital ad spend growth occurred, characterized by a leveling off from the previously high growth rates. This was partly due to base effects, as the exceptional growth during the pandemic set a high comparison benchmark, and partly due to economic caution. Despite concerns over the potential for a recession in 2022 and early 2023, which did lead to some conservatism in ad spend, the expected downturn did not materialize, thus the deceleration in ad spend was not as severe as some had anticipated.

The fundamental nature of advertising as a driving force in the economy came to the fore as businesses resumed advertising to vie for a share of the ongoing economic growth. This activity underscores the resilience and adaptability of the advertising sector. While there was a shift in the balance between service providers and goods retailers in their respective ad spends, overall investment in advertising increased once business confidence began to rebound. Contrary to some investors' expectations of a significant pullback in ad spend, the sector has proved more robust.

Currently, the advertising sector seems to be at a pivotal juncture, with underlying demand for advertising picking up again. This renewed vigor is likely driven by businesses recognizing that, irrespective of macroeconomic crosswinds, advertising remains an indispensable tool for market penetration, brand reinforcement, and sales growth. The 'fundamental law' of advertising as a necessary expenditure persists because it is an integral part of the commerce cycle, facilitating the connection between products and services and their potential consumers. Therefore, as consumer behavior continues to evolve and technology advances, the advertising industry, especially the digital segment, is expected to continue adapting and thriving.

Rise and Advantages of Connected TV (CTV) Advertising

Connected TV (CTV) advertising offers a multitude of benefits, chief among them being its sophisticated targeting capabilities. Unlike traditional TV advertising, which casts a wide net, CTV advertising can utilize viewer data to serve tailored ads to specific segments of the audience based on their viewing habits, interests, and demographics. This personalization ensures that the ads are more relevant to the viewer, potentially increasing engagement and conversion rates. Furthermore, as a video-based medium, CTV benefits from the high engagement rates associated with video content. Video ads are more likely to capture attention and can convey a brand's message more effectively than static ads, leveraging storytelling and emotional resonance.

The rise in CTV consumption can be attributed to the proliferation of streaming content and the increasing number of ad-supported viewing options. With more high-quality content available on various streaming platforms, consumers are increasingly turning to CTV as their primary mode of content consumption. Additionally, the growth of ad-supported video on demand (AVOD) services caters to consumers who prefer free or lower-cost subscriptions in exchange for viewing advertisements, broadening the audience for CTV advertising.

For digital advertising, the shift towards CTV represents a significant expansion of the ecosystem. CTV combines the broad reach and immersive experience of traditional television with the precision and analytical depth of digital advertising. As a result, advertisers can execute large-scale campaigns with measurable impact and granular control over who sees their ads and how they interact with them. As CTV viewership continues to climb, advertisers are likely to allocate more of their budgets to this channel, making it a pivotal element in the digital advertising mix.

Projected Growth in Programmatic Advertising

The forecasts by eMarketer and MAGNA suggest a robust and expanding programmatic advertising ecosystem, particularly in the United States and globally. The projected growth in US digital ad spend, despite a slight deceleration in 2023, indicates a strong recovery and upward trajectory into 2024 and 2025. The resilience of programmatic display ad spend, with a rebound from 6% growth in 2022 to a forecasted 9% in 2023, and further acceleration in the subsequent years, highlights the increasing reliance on and confidence in programmatic methods by advertisers.

The substantial growth rates forecasted for programmatic video spending, outpacing general digital ad spend, underscore the shifting preference towards video content — an area where programmatic advertising excels in targeting and engagement. The significant role of CTV in this growth narrative, with its exceptional year-on-year increases, reflects a broader consumer shift from linear TV to streaming platforms. This transition is not only reshaping viewing habits but also reallocating advertising budgets, with CTV becoming a key beneficiary of digital ad spend.

Globally, digital ad spend is expected to continue its steady climb, with programmatic display spending projected to outperform domestic growth. This global perspective indicates a widespread adoption of programmatic advertising techniques across different markets, suggesting that the infrastructure for programmatic advertising is becoming increasingly sophisticated and ubiquitous worldwide.

MAGNA's forecasts further reinforce the trend toward digital, with digital media owners seeing an upward revision in revenue forecasts, contrasting with the downgraded expectations for traditional media. This shift signifies a broader reallocation of advertising dollars from traditional formats to digital platforms, a trend that is expected to persist as digital advertising, particularly programmatic, proves to be more effective, measurable, and efficient.

Influence of Economic Indicators on Digital Ad Spend

Adobe’s projection of the e-commerce market growing by 50% over three years, coupled with eMarketer’s data showing e-commerce’s increasing share of total retail from 14% pre-pandemic to 19.5% in 2023, highlights the enduring shift in consumer purchasing behavior towards online platforms. This shift is not a temporary phenomenon but rather a structural change in the retail landscape, with expectations for e-commerce to account for 23% of retail sales by 2027.

This ongoing expansion in e-commerce is a tailwind for digital ad spend. As more retail transactions move online, retailers and brands will likely increase their investment in digital advertising to attract and retain customers. The continuous growth in e-commerce sales, as indicated by the Federal Reserve's data, suggests that businesses will maintain or even boost digital ad budgets to capitalize on the robust online retail environment.

The broader economic indicators, such as sustained job and wage growth, along with an increase in disposable income, provide consumers with the means to spend. This economic health drives consumer demand, which in turn fuels retail and e-commerce sales. As inflation moderates, the purchasing power of consumers is preserved or even enhanced, which can lead to more robust consumer spending and a healthy retail sector.

In such an environment, brands and retailers are incentivized to compete for consumer dollars, and one of the most effective ways to do so is through targeted digital advertising. Consequently, healthy economic indicators, coupled with the steady expansion of e-commerce, suggest that digital ad spend will remain robust as companies vie for visibility and sales in a burgeoning online marketplace. The interplay between e-commerce growth and economic health creates a virtuous cycle for digital advertising, where increased retail activity drives more digital ad spend, which in turn can stimulate further economic activity by driving consumer engagement and sales.

Forecast and Valuation

Despite facing short-term headwinds in managed service and publisher sold Connected TV (CTV) inventory, Magnite's core business and structural opportunity remain robust and largely misunderstood by the market. These temporary challenges are not indicative of structural shifts but rather reflect the broader economic environment's impact on advertising spend.

Contrarily, the underlying structural opportunity in programmatic and CTV advertising remains intact and is poised for significant growth. This disconnection between current market perception and the actual potential of Magnite's business suggests that the stock is highly undervalued, and its true value will become evident as the market recognizes the enduring strength and growth trajectory of its business model.