MGI Q1 on Tuesday: Off to a Strong Start to the Year

MGI is set to release its Q1 results on Tuesday morning (May 7) at 8:00 am CEST, a rescheduling from the previously announced date of May 30. We anticipate that the robust organic growth achieved in Q4 (16%) will gain further momentum in Q1, supported by strong sales development observed in January (18%) and February (25%). Any guidance and/or comments regarding the growth momentum during Q2 and outlook for the remainder of 2024 will be of interest in the report to gauge the sustainability of the recovery shown since Q4’23. MGI has previously guided for a return to double-digit organic growth in 2024, which appears increasingly feasible given the strong start to the year, several significant cyclical events during the year, the company’s strategic investments in ID-less solutions, and its focus on the faster-growing platforms of mobile and CTV.

We Expect a Strong Start to the Year with Double-Digit Growth

We expect Q1 revenues to come in at 81.1 MEUR (Q1’23: 68.8 MEUR), representing an 18% increase YoY, normalized for FX and game divestments. The growth is expected to be underpinned by increased budgets from existing customers, successful acquisition of new customers, and an increasing demand for ID-less targeting solutions. We foresee a heightened revenue contribution from the SSP segment, building upon the strong finish witnessed in 2023. Additionally, it's important to note that the first quarter typically experiences lower activity in the digital advertising market due to seasonal trends. This is incorporated in our Q1 net sales estimates, which imply a net sales decrease of 17.8% QoQ.

Normally we evaluate the quarterly performance of some of MGI’s open internet competitors ahead of MGI’s own earnings release to gauge the development of the digital ad market but also to get valuable insights into current trends. With the accelerated release of the Q1 report, we haven’t had the opportunity to assess the performance of MGI’s open internet competitors, as most of them report either the same day as MGI or the day after. However, notable “walled gardens” competitors such as Google, Meta, and Amazon have already revealed strong growth within their advertising segments in Q1, registering increases of 13.0%, 26.8%, and 24.0%, respectively. These figures reinforce the notion of a broader recovery in the digital ad market.

Driving Earnings Growth through Cost-Savings Initiatives

We estimate the adjusted EBIT to be 17.7 MEUR, marking a 17% increase YoY (Q1’23: 15.2 MEUR), translating to an adjusted EBIT margin of 21.8% (Q1’23: 22%).  Alongside the uptick in sales volumes YoY, we expect the earnings growth to continue to be supported by the cost-saving program implemented in 2023 through lower personnel costs as a percentage of sales. Furthermore, the adjusted EBITDA is estimated at 22.5 MEUR, reflecting an 18% increase from the corresponding period (Q1’23: 19.1 MEUR), while maintaining an unchanged margin of 27.7%.

Moving down the income statement, we project a pretax profit of 1.4 MEUR. The pre-tax profit is burdened by interest costs of roughly 13 MEUR linked to MGI’s interest-bearing debt of about 417 MEUR. Additionally, we estimate that adjusted EPS will remain consistent with the previous year at 0.03 EUR (Q1’23: 0.03). 

The 2024 Outlook Looks Promising

MGI concluded 2023 on a high note, achieving a robust organic growth rate of 16%, as the advertising market showed early signs of recovery in Q4’23. The positive momentum has carried over into the beginning of 2024, with MGI witnessing a surge in ad spend from existing clients, successful onboarding of new customers, and an escalating demand for ID-less targeting solutions. According to Adroll’s own customer surveys, 40% of marketers plan to increase their advertising spend in 2024, while 30% will maintain budgets similar to 2023. In addition to this, Insider Intelligence projects that 2024 ad spend growth will accelerate by nearly 10%, the second-highest growth on record since 2011, which underscores a promising outlook for MGI and the broader advertising ecosystem.

Our revenue estimates for 2024 stands at 366.8 MEUR, corresponding to a robust 13.9% organic growth. However, we recognize certain risks that may impact these projections, notably the overall economic landscape, including factors such as GDP and consumer sentiment, as well as the outlook for interest rate cuts, which wield significant influence over the advertising industry. Persistent inflationary pressures, coupled with softer U.S. GDP growth in Q1’24 and the resilient U.S. labor market, pose potential risks of fewer interest rate cuts in the near term. Additionally, our adjusted EBIT and adjusted EBITDA estimates for FY2024 stand at 81 MEUR and 102.8 MEUR, respectively. This translates to adjusted EBIT and adjusted EBITDA margins of 22.1% and 28%, correspondingly. It's noteworthy that our current earnings estimates do not include the impact of the Google Cloud deal announced in Q2’24. Consequently, we anticipate upward pressure on our mid-term estimates.

Lastly, we remain keenly interested in monitoring MGI's cash flow and net debt dynamics, factors that play pivotal roles in assessing the company's financial health and strategic agility going forward.