Rubicon IPO Explodes Upwards --  Here's Why

Frank AddanteFrank Addante / TwitterRubicon CEO Frank Addante

Wall Street has finally found an adtech IPO that it actually likes.

Maybe even loves.

Rubicon Project, the giant online ad server, went public today at $US15 and by mid-afternoon the stock was up 36% to $US20.52.

The sale raised $US101.5 million from 6.8 million shares. Rubicon will get $US81.3 million in gross proceeds, while the rest of the shares are being sold by Rubicon shareholders, according to the AP.

That’s news because until recently, investors have hated adtech IPOs, driving down their stocks dramatically after launch. Velti, Tremor Video, YuMe, Rocket Fuel and Criteo all had “meh” reactions from the market after their immediate debuts.

Rubicon, however, has nearly perfect numbers on its side: The company booked $US28 million in sales in Q4 2013, up from $US19 million the year before. It virtually broke even on the bottom line. Although it has never turned a profit its losses have been so small, and consistently contained, compared to its revenues that it is clear the company carefully manages those margins.

And its topline growth is such that it can become profitable any time it wants.

When asked why investors were driving up the stock, CFO/COO Todd Tappin told us it’s because there are a bunch of different markets and platforms that the company has yet to get into, but will do soon. They include:

  • Expansion in Japan, India and China in 2014.
  • Running ads in mobile apps in 2014. Currently, the company offers ads on the mobile web but not inside apps where users spend most of their mobile time.
  • Video ads coming in 2014: The company does not currently serve video, even though video advertising is much more lucrative than the banner advertising that is the core of its business.

Rubicon’s core business, real-time bidding, was a $US4.5 billion market in 2013, Tappin says. He believes that will grow to $US20 billion in 2017. RTB has a 123% growth rate generally, but Rubicon grew its RTB business 282%, Tappin says.

Did he therefore price the IPO too low? $US15 was the low end of the company’s range. It could have been priced at $US16 or more and still delivered a headline-making first-day pop, in hindsight. “A dollar or two at the open isn’t significant enough compared to where we offer value over the long run,” Tappin says.

Morgan Stanley, Goldman Sachs and RBC were among the banks who handled the floatation.

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