Is Magnite (NASDAQ:MGNI) stock an under-the-radar gem or just a magnet that’s bound to attract trouble and capital loss? I won’t deny that Magnite is an interesting company, but I am bearish on MGNI stock because Magnite’s quarterly net loss (on a GAAP basis) is a glaring red flag.
Based in New York, Magnite is an advertising company that helps publishers monetize their content through video and audio formats. Although Magnite is usually not a topic of conversation on financial social media, it’s definitely garnering a lot of attention today.
However, it’s probably unwanted attention, as MGNI stock is quickly losing value. What’s going on, and is there a buy-the-dip opportunity here? In the final analysis, you’ll probably decide that Magnite is intriguing but not a good candidate for an investment.
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Magnite Stock Gets Clobbered
August 10 was a painful day for many MGNI stock investors, no doubt, as the shares lost 35% of their value in a single trading session. Furthermore, the stock’s price has been practically cut in half since mid-July.
Everything seemed fine with Magnite just a month ago, so what just happened? It’s not difficult to identify the culprit, as Magnite recently released its second-quarter 2023 earnings results.
In some ways, Magnite’s results were perfectly acceptable. For example, the company’s revenue grew by 11% year-over-year to $152.5 million. Analysts had expected Magnite to report $134.27 million in quarterly revenue, so the company’s actual result was definitely a Street beat.
So far, so good. Overall, Magnite President and CEO Michael G. Barrett seemed confident about his company’s position in the market for ad-supported connected television (CTV). “We feel very good,” Barrett assured, “about how we’re positioned to assist the CTV market participants accelerate their transitions to programmatic CTV over the next several years.”
Magnite may be able to achieve its objectives, as the company expects its free cash flow to exceed $100 million for 2023. As we delve into Magnite’s bottom line, however, the reason for the sell-off in MGNI stock will become increasingly clear.
Magnite Needs to Curb Its Expenditures
Magnite’s chief executive may be confident about the company’s future prospects, but there’s a major problem that Magnite needs to solve. Moreover, it might be challenging to identify this problem unless you read the fine print in Magnite’s Q2 results.
While analysts forecasted that Magnite would report earnings of $0.07 per share, the company actually posted $0.09 per share. On the other hand, Magnite earned $0.13 per share in the year-earlier quarter.
Also, bear in mind that these are non-GAAP-measured EPS figures. Consequently, there may be uncomfortable facts hidden beneath the headline per-share earnings stats. When measured differently, Magnite incurred a “net loss of $73.9 million, for a loss per share of $0.54, compared to net loss of $25.0 million in Q2 2022.”
This just goes to show that companies can use different measurement methods to present more or less favorable results to the public. After combing through Magnite’s press release, I observed that the company managed to rack up $224.3 million worth of expenses in the second quarter; to reiterate, Magnite’s revenue was only $152.5 million.
The vast majority of the company’s second-quarter capital outlays fell into the mysterious category of “cost of revenue.” There’s not a whole lot of transparency there, and generally speaking, I believe it would benefit Magnite if the company identifies ways to cut costs and publishes an action plan on that topic.
Is MGNI Stock a Buy, According to Analysts?
On TipRanks, MGNI comes in as a Strong Buy based on seven Buys and two Hold ratings assigned by analysts in the past three months. The average Magnite price target is $14.44, implying 80.3% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell MGNI stock, the most accurate analyst covering the stock (on a one-year timeframe) is Matthew Thornton of Truist Financial (NYSE:TFC), with an average return of 149.7% per rating and a 72% success rate. Click on the image below to learn more.
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Conclusion: Should You Consider MGNI Stock?
Sometimes, I will recommend a stock after its price just became one-third cheaper. In the case of Magnite stock, however, it’s not on my high-conviction list, and I’m not seeing a bargain here.
Going forward, it’s fine to keep tabs on Magnite to see if the company gets proactive with cost-reduction efforts. Yet, unless that happens and Magnite’s bottom-line results improve, MGNI stock isn’t an investment worth considering, in my opinion.