Magnite, Inc. (MGNI) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary and Q&A indicate strong partnerships with major players like Netflix and potential benefits from the Google antitrust case. While the full-year guidance was not reaffirmed, Q2 guidance remains positive with expected revenue growth. The focus on AI and live sports expansion further boosts sentiment. Despite some uncertainties in management responses, the overall sentiment is positive, especially with potential market share gains and strategic partnerships, suggesting a likely positive stock price movement over the next two weeks.

Key Financial Performance

Total Revenue $173 million, up 6% from Q2 of 2024. Growth attributed to stronger than market growth in DV+ due to product enhancements and recent deals.

Contribution ex-TAC $162 million, up 10%, exceeding the high end of guidance range. Growth driven by CTV and DV+ performance.

CTV Contribution ex-TAC $72 million, up 14% year-over-year or 15% excluding political. Growth attributed to new and expanding partnerships, positive SMB trends, and programmatic growth in live sports.

DV+ Contribution ex-TAC $90 million, an increase of 8% from the second quarter last year. Growth driven by new product functionality and early contributions from new partners.

Adjusted EBITDA $54 million, growing 22% year-over-year with a margin of 34% versus 30% in Q2 last year. Growth due to higher revenue and disciplined cost management.

Operating Expenses $151 million, a decrease from $153 million for the same period last year. Reduction attributed to lower cloud computing costs and other employee-related expenses.

Net Income $11 million for the quarter compared to net loss of $1 million for the second quarter of 2024. Improvement due to higher revenue and cost management.

GAAP Earnings Per Share $0.08 for the second quarter of 2025 compared to a loss of $0.01 for the second quarter of 2024. Improvement due to higher revenue and cost management.

Non-GAAP Earnings Per Share $0.20 compared to $0.14 last year. Improvement due to higher revenue and cost management.

Cash Balance $426 million, a slight decrease from $430 million at the end of the first quarter. Decrease due to small timing differences in working capital flows.

Operating Cash Flow $34 million. Capital expenditures were $20 million.

Net Leverage 0.6x at the end of Q2, no change from the end of the first quarter.

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Operating Highlights

CTV contribution ex-TAC: Grew 14% or 15% excluding political, driven by new and expanding partnerships, positive SMB trends, growth in agency marketplaces, and programmatic growth in live sports.

SpringServe: Launched as a combined CTV platform with streaming and ad serving, providing a competitive advantage and improving internal operating efficiency.

AI capabilities: Expanded neural net and machine learning systems for traffic shaping, launched AI-powered audience discovery, and introduced an LLM for contextual categorization of CTV inventory.

SMB segment in CTV: Growth driven by factors like matured technology, scaled inventory, normalized CPMs, and reduced ad creative production costs due to AI.

Commerce media: Expanded partnerships with Western Union, PayPal, Kinective Media by United Airlines, and RE/MAX.

DSP partnerships: Growing partnership with Amazon as both a DSP and publisher, benefiting from supply path optimization.

Operational efficiency: Reduced per unit cloud costs and shifted functions from cloud to on-premises, driving margin expansion.

Adjusted EBITDA: Grew 22% year-over-year to $54 million with a margin of 34%, up from 30% last year.

Antitrust ruling against Google: Court ruling against Google’s monopolistic practices expected to benefit Magnite’s DV+ business, potentially shifting market share and increasing revenue.

Investment in growth areas: Focus on live TV, ClearLine, and curation offerings to increase market share.

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Risk or Challenges

Macroeconomic Factors: Potential impacts of macroeconomic factors on the business were mentioned, indicating risks related to economic uncertainties that could affect financial performance.

Regulatory and Antitrust Issues: The antitrust ruling against Google and its potential remedies could change the competitive landscape. While this may present opportunities, it also introduces uncertainties and risks related to market dynamics and legal outcomes.

Tariff Pressures: Lingering tariff-related pressures were noted, which could impact operational costs and profitability.

Cloud Computing Costs: Although progress has been made in reducing per-unit cloud costs, the reliance on cloud infrastructure still poses a risk to operational efficiency and cost management.

Competitive Pressures: The company faces competitive pressures in the CTV and DV+ markets, particularly as DSPs consolidate their spend to a few platforms.

Dependence on Key Partnerships: The company's growth is tied to partnerships with major players like Roku, Netflix, and Amazon. Any disruption in these relationships could adversely impact performance.

Political Ad Spend Volatility: The concentration of political ad spend in certain quarters introduces volatility and unpredictability in revenue.

Technological Advancements: While AI and other technological advancements are being integrated, there is a risk of falling behind competitors if these initiatives do not deliver expected results or are outpaced by rivals.

Market Share Shifts: The potential shift in market share due to Google's antitrust case could create opportunities but also risks, as the company must adapt to a changing competitive environment.

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Guidance & Outlook

CTV growth expectations: CTV contribution ex-TAC is expected to grow nearly 12% in Q3 2025, and over 18% when excluding political. For the full year, CTV growth is anticipated to be in the mid-teens excluding political.

DV+ growth expectations: DV+ contribution ex-TAC is projected to grow 7% in Q3 2025, and 10% when excluding political. Full-year growth is expected to be in the mid-teens excluding political.

Adjusted EBITDA margin expansion: Adjusted EBITDA margin is expected to expand by at least 150 basis points for the full year, an increase from the previous guidance of 100 basis points.

Free cash flow growth: Free cash flow is projected to grow in the high teens to 20% for the full year.

Capital expenditures: Total CapEx for 2025 is expected to be approximately $60 million, with potential for incremental investment as the company transitions to on-premises infrastructure.

Market share shift from Google: The company anticipates a potential market share shift away from Google in the DV+ market starting as early as 2026, driven by antitrust remedies. Each 1% share shift could result in $50 million of additional contribution ex-TAC annually.

AI advancements: The company is launching AI capabilities, including an LLM for contextual categorization of CTV inventory, AI-powered audience discovery, and traffic shaping to enhance campaign reach and monetization.

Live sports and SMB growth: Live sports and SMB-focused DSPs are expected to be significant growth areas over the next 3-5 years, with SMBs increasingly entering the CTV market.

Commerce media expansion: Commerce media is identified as a continued growth area, with new partnerships including Western Union, PayPal, and RE/MAX.

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Shareholder Return Plan

Dividend Program: During the quarter, we repurchased or withheld over 800,000 shares for approximately $11 million. As of today, we have $88 million remaining in our authorized share repurchase program, which we will continue to deploy opportunistically.

Share Repurchase Program: During the quarter, we repurchased or withheld over 800,000 shares for approximately $11 million. As of today, we have $88 million remaining in our authorized share repurchase program, which we will continue to deploy opportunistically.

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Key Q&A

Q:Can you talk about the broader momentum you're seeing with new partnerships and customer wins?

A:Michael G. Barrett highlighted the company's success with new partnerships and customer wins, particularly in the CTV space. He emphasized the modular approach of their product stack, which has been well-received in the market, and noted that their competitive set is lean, indicating strong positioning.

Q:What is your thinking regarding the Google case and its potential benefits to Magnite?

A:Michael G. Barrett stated that it is difficult to predict the outcome of the Google case as remedies have not been ruled by the judge. He mentioned that they are evaluating the situation and believe there is merit in potential civil litigation.

Q:What is driving the reiteration of the prior guidance despite the Q3 raise?

A:David L. Day explained that the ad spend market has stabilized, which provided comfort in reiterating the full-year guidance. He also highlighted growth in CTV and DV+ businesses, with the latter showing unexpected strength due to new product releases and recent deals.

Q:How do you view the development of AI in the marketplace and its impact on DV+?

A:Michael G. Barrett acknowledged that AI tools have reduced search referral traffic for some clients but noted that their business is diversified, with significant mobile app and CTV components. He expressed confidence in their ability to adapt and potentially benefit from AI-driven changes in the market.

Q:What is the contribution of live sports to your platform this year?

A:Michael G. Barrett stated that live sports are encouraging for the streaming market, with consumers favoring streaming over traditional cable. He mentioned ongoing participation in sports networks like FanDuel but noted that it is still early to quantify the contribution.

Q:Why is Magnite gaining traction with platform companies like X and Pinterest?

A:Michael G. Barrett attributed this to platform companies realizing they were under-monetizing inventory by not integrating third-party demand. He noted that programmatic is increasingly preferred by agencies and marketers, positioning Magnite as a key partner.

Q:How is the partnership with Netflix progressing?

A:Michael G. Barrett described the partnership with Netflix as strong and emphasized their role in Netflix's ad suite rollout. He mentioned that Netflix could become one of their largest clients on a run-rate basis by year-end.

Q:What is the basis for suggesting that behavioral remedies in the Google antitrust case could be implemented during an appeal?

A:Aaron Saltz, General Counsel, explained that courts may implement remedies to address illegal practices even during an appeal. He noted that they are awaiting the decision but believe there is a realistic possibility for such remedies.

Q:What is the timing for potential civil litigation against Google?

A:Aaron Saltz stated that they are considering all options and believe there is merit in pursuing civil litigation. However, he did not provide specific timing, noting that they are monitoring other participants who have already filed suits.

Q:Is the positive trend in DV+ related to Google's network business decline?

A:Michael G. Barrett stated that the positive trend in DV+ is not correlated with Google's network business decline. He attributed the growth to the team's efforts and competitive positioning, suggesting that any share shift is coming from direct competitors.

Q:Could Amazon become a bigger client than Netflix for Magnite?

A:Michael G. Barrett considered it unlikely in the near term, as Amazon would need to open up its owned and operated inventory significantly to match Netflix's opportunity. However, he acknowledged the importance of their partnership with Amazon.

Q:Is MNTN buying ad inventory from Magnite?

A:Michael G. Barrett confirmed that MNTN has been a DSP running through Magnite to access CTV supply for years, although he could not comment on the entirety of MNTN's business.

Q:What about the margin improvement is sustainable, and what is one-time in nature?

A:David L. Day noted that some margin improvement is sustainable, while part of the beat was due to timing of personnel costs, which will return in Q3. He also mentioned planned investments in engineering and sales teams for high-opportunity areas.

Q:What are the major limiting factors for faster demand growth in CTV?

A:Michael G. Barrett identified the continued presence of linear TV and challenges with measurement and attribution as limiting factors. He emphasized the need for common standards to make it easier for advertisers to spend on CTV.

Q:What is the weighted average programmatic penetration among your partners?

A:Michael G. Barrett noted that programmatic capabilities are increasingly emphasized in upfronts, with buyers and sellers showing growing interest. He expressed optimism about the future of programmatic in a streamed environment.

Q:Are there other opportunities that could arise from the Google antitrust case?

A:Michael G. Barrett suggested that sticking to their core business and capturing share from Google's 60% market share would be sufficient for growth, without needing to explore additional opportunities immediately.

Q:What are the AI capabilities being developed on your platform?

A:Michael G. Barrett highlighted the use of AI to crawl video content for better labeling and targeting, which could increase targetable audiences and revenue. He expressed excitement about this and other potential AI applications.

Q:Are there any areas of interest for M&A?

A:Michael G. Barrett stated that they are focused on organic growth but would consider small acquisitions to advance their road map. He emphasized that they are not looking for large-scale purchases.

Q:Review of Unclear Management Responses

A:Management avoided providing direct answers to questions about the timing of potential civil litigation against Google and the specific timing or intentions regarding behavioral remedies in the Google antitrust case. They also used vague language when discussing the potential contribution of live sports and the weighted average programmatic penetration among partners.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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