magnite (MGNI -2.49%) and PubMatic (PUBM -4.52%) are direct competitors in the field of advertising technology. Both companies are supply-side platforms (SSPs), meaning they partner with publishers to sell their supply of ad space to advertisers.
Although Magnite and PubMatic have had success adding new customers over the past year, there is one account that I doubt they will be secure anytime soon. Turns out Vox Media thinks they don’t need it.
A risk for SSP ad tech companies
Vox Media’s portfolio includes magazines like New York, websites like SBNation, a range of podcasts, and even video content. According to the company, it is one of the top 10 media outlets with a monthly audience of over 130 million people. Needless to say, this would be an account Magnite and PubMatic would love to have.
But they won’t get it anytime soon. On June 7, Vox Media announced the launch of its own SSP. To be clear, the company has been active in the digital ad space since 2016 when it launched Concert, a product to help small publishers advertise. Therefore, Concert SSP is a continuation of these earlier efforts.
This shouldn’t be surprising. After all, Vox Media is partly owned by NBCUniversal, which is owned by Comcast. And Comcast is another media company that isn’t interested in the services of independent SSPs. The company acquired its own ad tech solution in 2014 when it bought FreeWheel for $360 million.
In short, Magnite and PubMatic don’t just have to outdo each other. They must also convince publishers to use their services. But as we’ve seen, sometimes publishers, like Vox Media and Comcast, develop solutions in-house. And there’s nothing stopping current Magnite and PubMatic customers – especially the big, wealthy ones – from developing their own technology in the future.
What this means for investors
Before Magnite and PubMatic shareholders press the panic button, let’s keep things in perspective. Winning and retaining customers does not seem to be a problem for either company so far. For example, Magnite has secured top accounts like disney, RokuTubi, Discovery (now part of Discovery of Warner Bros.), and more. For its part, PubMatic works with 176 connected television publishers in the first quarter of 2022, compared to only 80 publishers in the same quarter of the previous year. Moreover, its customers spent 40% more on average in the first quarter than in the first quarter of 2021. Therefore, as we can see, both companies are doing well when it comes to their customers.
However, while we shouldn’t panic in the wake of Vox Media’s announcement, we shouldn’t sugarcoat things either. After all, developing an SSP solution in-house makes much more sense for publishers than developing technology for the other side of the market: demand-side platform (DSP) technology, which includes companies such as The trading post (TTD -6.17%). SSP technology is more incidental for publishers. DSP technology would be a business further removed from a publisher’s core competency.
In addition, SSPs are more sensitive to the risk of customer concentration than DSPs because there are fewer potential customers of substantial size. For example, Yahoo! accounted for 17% of PubMatic’s revenue in 2021. In Magnite’s case, just its top two clients combined accounted for 36% of its total revenue. In other words, if any of these big players developed their own in-house solution, it would be a big deal for Magnite and PubMatic.
The Trade Desk does not have an individual customer that accounts for 10% or more of its billing. Admittedly, it is in direct competition with one of the largest companies in the world when it comes to Alphabetit’s Google. However, the DSP market is larger than the SSP market. And for all of these reasons, I’d say The Trade Desk probably has a bigger competitive moat than Magnite or PubMatic.
That doesn’t mean that Magnite and PubMatic are bad stocks to buy. In fact, I think PubMatic is a particularly good stock to buy now. But all actions, even good buys, carry inherent risks. And all investors should properly assess the risks before they spend their cold, hard cash on buying stocks.
Going forward, I think this is something Magnite and PubMatic shareholders need to watch out for. Will other vendors be working on developing their own SSP platforms? I personally don’t think that’s a likely outcome at this time. But it is a potential result that you should nevertheless be aware of.