Magnite Snaps Up Video Ad Platform SpotX For $1.2B; Shares Pop 26%

Magnite on Feb. 5 announced the acquisition of SpotX, a video advertising platform from RTL Group for $1.17 billion in a cash and stock transaction. Shares of Magnite jumped 26.4% and closed at $54.95 on Friday.

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The acquisition price consists of $560 million in cash and 14 million Magnite (MGNI) shares based on the stock’s closing price as on Feb. 4. The sell-side advertising platform company is seeking to strengthen its connected TV (CTV) advertising market with this acquisition.

Magnite CEO Michael Barrett said, “Sellers have been looking for a scaled independent alternative to the giant companies who dominate the CTV marketplace. The combination of Magnite and SpotX will make this a reality by bringing together the best CTV technologies and teams at a critical time. Ad-supported CTV is just beginning to draw budgets from linear TV and we will be well-positioned to participate in the strongest segment of industry growth for the foreseeable future.”

On a pro forma basis, the non-GAAP net revenue for the combined company in FY20 is estimated at $350 million. SpotX’s preliminary non-GAAP net revenue for FY20 was $116 million, out of which $67 million was CTV advertising, that is, around 57% of SpotX’s net revenues. (See Magnite stock analysis on TipRanks)

On Jan. 28, B.Riley Financial analyst Zachary Silver reiterated a Hold rating and a price target of $40 on the stock. Silver said, “…we expect that MGNI can achieve growth rates above our industry forecast, driven mainly by 1) its omni-channel capabilities (a major differentiator from other independent SSPs[supply-side platforms]); 2) increased DM [data management] platform revenue; and 3) more programmatic dollars consolidating on fewer SSPs (SPO).”

The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating. That’s based on 5 analysts recommending a Buy and 2 analysts suggesting a Hold. The average analyst price target of $30.90 implies 43.7% downside potential to current levels.