Ad tech company Rubicon Project reported a mixed set of Q3 earnings on Wednesday — lowering its guidance for the fourth quarter and announcing plans to lay off 19% of its workforce — and the analyst view on the company is decidedly somber right now.
At the heart of Rubicon Project’s issues is the fact that it was slow to react to header bidding, the hottest trend in ad tech.
Header bidding is a piece of code that allows publishers to squeeze out more revenue from their ad inventory by offering the slot out to multiple buyers simultaneously before it reaches the ad server (For a full primer on header bidding, read our post from last year.)
Rubicon Project warned in the second quarter that its slow adoption of header bidding had led to a decline in revenue on desktop. Now what is concerning is that competitors appear to be stealing share on mobile too, thanks to header bidding.
The company also blamed a “softness” in the advertising market for its disappointing results — although this trend does not seem to be affecting companies like Alphabet, Facebook, or Criteo, which all reported stellar third quarter earnings.
Here is a roundup of what the analysts are saying. Most of their assessments were negative, but note there are some firms confident Rubicon Project stock is a buy:
Albert Fried & Company (DOWNGRADE FROM MARKET PERFORM TO UNDERWEIGHT): “We generally do not like to assign underweight ratings to companies in a strong strategic position and whose management teams are addressing problems to build long term shareholder value. To be clear, we think Frank Addante, the CEO, is taking the appropriate measures and the downgrade is not a vote of no confidence. It is acknowledgement that the probability of RUBI shares trading lower is high as it’s a broken growth Company with strategic concerns.”
Boenning & Scattergood (NEUTRAL): “Key focus was on progress towards overcoming header bidding headwinds, and while progress was made we do not believe it was enough to improve investor confidence much. Together with other factors such as a choppy overall ad environment due to U.S. election dynamics and difficulties managing the transition to mobile, header bidding has created a perfect storm and limited visibility on ad spend.”
Cantor Fitzgerald (HOLD): “We believe any turnaround at RUBI is likely to take several quarters, given 1) further leakage of premium inventory to competitors’ desktop header bidding systems, 2) FastLane’s relatively small size at 16% of spend, and 3) increase in buyers choosing self-service over Rubicon’s managed services (Chango). While programmatic advertising continues to thrive, as evidenced by Alphabet and Facebook’s strong 3Q16 results, we believe Rubicon’s issues need to be resolved promptly if the company is to participate in this secular trend long term.”
Citi (NEUTRAL/HIGH RISK): “While there were some clear positives in the quarter, and we appreciate the additional colour provided on the call, we remain on the sidelines until we have clarity on the current state of its desktop header bidding position, as well as greater visibility as to when mobile header bidding becomes more important for the industry. We have been cautious on the ad tech group as a whole, and RUBI is another example of how quickly tides can turn.”
Craig-Hallum (BUY): “While we see obvious challenges to the model, we also see attractive opportunities that remain intact, including orders, mobile app, and video. With tighter costs now in place, we see a continuation of reasonable cash flow generation over the next few quarters until the refreshed header bidding tool begins to transition from a headwind to a tailwind.”
Jefferies (BUY): “We see multiple growth drivers for Rubicon in 1) growth from existing sellers; 2) the addition of new sellers onto the platform; 3) capitalising on the large Direct Orders opportunity; 4) international expansion; 5) mobile and video expansion; 6) automating additional media outside of digital; and 7) further leveraging of data to improve the value of each transaction.”
Needham (HOLD): “Although the company developed its header bidding solution, FastLane, we believe additional fine-tuning is needed to make it compete more effectively, which we expect to take at least a couple more quarters.”
Oppenheimer (PERFORM): “Following disappointing 3Q results and 4Q guidance, we remain on the sidelines until we identify evidence of a turnaround related to header-bidding … While we can guess at inflection of managed revenues over next 4 qtrs, there is no visibility on where take rate goes long term, which for us makes stock un-investible.”
RBC Capital Market (PERFORM): “RUBI management clearly has its work cut out in the face of Header Bidding, slowing Desktop demand and meaningful competition. We believe they are taking the right step by initiating cost reductions and pushing forward with their FastLane Header Bidding product, but this is something where only time, and sweat, and maybe some tears, will tell.”
There are some glimmers of light for Rubicon, however. The headcount reduction, while tumultuous and distressing in the short-term, will reduce its costs in the long-term. Ad spend on its direct orders business is accelerating year-on-year. The company counts hundreds of premium publishers among its clients and it does not seem to have lost any big customers, despite its current challenges.
But Rubicon Project needs to move quickly to build investor confidence, having guided down its outlook in three consecutive quarters. The company must start beating guidance and it would help to be first to market (or at least very quick to market, rather than lagging behind) with new products to accelerate revenue.
In October, the company hired former Google executive Tom Kershaw as its chief product and engineering officer, so Rubicon Project may well have something in the works. Most investors will be hoping that something is revealed soon.
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