Rubicon Project Automates the Digital Ad Marketplace

In the fragmented ad-tech market, Rubicon Project is focused on the sellers. The company’s cloud-based platform automates sales of digital ads for more than 700 publishers and applications, including 40 percent of the ComScore 100.

The company boasts that its ad exchange reaches 97 percent of Internet users and claims that no digital display platform in the US has a wider reach.

On the buyer side, ad agencies, ad networks, more than 300 demand-side platforms (DSPs) and more than 100,000 brands use Rubicon Project’s solutions to simplify the management of their digital ad spending — covering everything from order flows to campaign tracking and audience analytics.

So what's the outlook for this company?

Significant Growth

In 2013, ad revenue transacted on the company’s platform rose 43 percent to $485.1 million after gaining 42 percent in the prior year. Last year, Rubicon Project’s take rate, or share of the managed revenue, was 17.3 percent, up from 16.8 percent in 2012 and 15.5 percent in 2011. The company’s 2013 revenue rose 47 percent to $83.8 million.

For the first quarter of 2014, managed ad revenue on the platform advanced 34 percent to $129.6 million and Rubicon Project’s revenue rose 39 percent to $23 million on a take rate of 17.8 percent.

In 2010, Rubicon Project’s platform was enhanced by the addition of real-time bidding (RTB) capability, which allows ad inventory to be sold in an auction format to buyers—mainly DSPs. RTB, geared toward Web pages with high traffic, now represents the bulk of Rubicon Project’s business.

According to IDC, the total market for RTB is expected to advance to $20.8 billion in 2017 from $1.4 billion in 2011, representing a CAGR of 57 percent. Overall RTB spending last year rose 67 percent to $4.5 billion; the growth rate for this year is estimated at 50 percent. In the first quarter, Rubicon Project’s RTB managed revenue increased 75 percent.

In 2012, Rubicon Project launched a private marketplace, allowing sellers to connect directly with pre-approved buyers on a contractual basis. Much larger than the RTB segment, the current market for direct digital ads (often prominent home page placements) is estimated to be roughly $37 billion. Even on the RTB side, roughly half of the US market is expected to be of the direct variety by 2017, according to IDC.

$90B Market

PwC estimates that the total digital display, mobile and video ad market will top $90 billion in three years, versus $43 billion in 2012. As more advertising shifts to automated buying and selling from traditional, manual (time consuming) means, Rubicon Project’s growth will be less dependent on an increase in the number of ad buyers on the platform than on the amount of spending per buyer, according to company management.

In 2013, average spending per buyer on the Rubicon Project platform hit $1.2 million, up from $917,000 in 2012 and $663,000 in 2011. For the 20 largest buyers, average spending on the platform last year was $17.8 million, vs. $3.8 million in 2010, a CAGR of 67 percent.

As more transactions are completed on the Rubicon Project platform, the company’s self-optimizing technology analyzes and learns from the large volume of associated data, leading to higher quality ad matching between buyers and sellers, a better ROI for buyers and increased revenue for sellers. In 2013, the average RTB inventory monetized per seller on the platform was $437,000, up from $46,000 just three years earlier.

Selective Expansion

Looking ahead, Rubicon Project plans to selectively expand ad inventory on the platform from premium sellers; bring buyers and sellers closer together; and grow its international footprint.

In addition, the company will build out its presence in the fast-growing mobile and video ad segments; it’s further along on the mobile side, having launched a mobile-focused solution in the fourth quarter of 2012. As of December, Rubicon Project had 130 mobile sellers operating on its platform. The company is expected to roll out its video ad initiatives later this year.

Rubicon Project went public in April at $15 a share and opened for trading at $17.50. The stock ran up to a high of $23.20 on April 23, then got swatted down in the recent market correction, hitting a new post-IPO low of $11.15 earlier this month. At a recent price of $11.92 a share, the company has a market cap of $426 million, 3.8 times the 2014 consensus revenue estimate of $113.1 million (representing growth of 35 percent).

Want to know more? You can watch CEO Frank Addante in the following video.