Rubicon Project IPO A Less-Than-Dazzling Advertisement

| About: The Rubicon (RUBI)

Summary

RUBI is a provider of an automated digital advertising exchange.

RUBI plans to raise $108.3 million in its upcoming IPO, offering 6.8 million shares at an expected price range of $15-$17 per share.

We plan to avoid this IPO as RUBI continues to post significant losses yet still offers very high compensation to its Executives.

The Rubicon Project Inc (NYSE:RUBI), provider of an automated digital advertising exchange, plans to raise $108.3 million in its upcoming IPO.

The Los Angeles, California-based firm will offer 6.8 million shares at an expected price range of $15-$17 per share. If the IPO can find the midpoint of that range at $16 per share, RUBI will command a market value of $671 million.

RUBI filed on February 4, 2014.

Lead Underwriters: Goldman Sachs & Co, Morgan Stanley & Co LLC, RBC Capital Markets LLC.

Underwriters: LUMA Securities LLC, Needham & Company LLC, Oppenheimer and Co, Inc.

Summary

RUBI uses its Advertising Automation Cloud software platform to support a digital advertising marketplace to connect sellers and buyers, using an algorithm-based solution to maximize sellers' advertising revenues and provide extensive reach to buyers, especially in the United States.

Buyers are able to reach some 97% of United States' Internet users, and over 600 million users globally. RUBI boasts technical integration with over 700 sellers of digital advertising, which include 40% of the US comScore 100 (a list of the top US digital sellers ordered by reach). The Advertising Automation Cloud platform's sophisticated algorithms, analytics, and processing capacity allow it analyze billions of data points in real time, and to process approximately 25 billion transactions per week.

Valuation

RUBI offers the following figures in its S-1 balance sheet for the year ended December 31, 2013:

Revenue: $83,830,000.00

Net Loss: ($9,249,000.00)

Total Assets: $149,887,000.00

Total Liabilities: $133,727,000.00

Stockholders' Equity: ($36,411,000.00)

In 2011, 2012, and 2013, RUBI recorded increasing revenues of $37.1 million, $57.1 million, and $83.8 million, respectively. Over the same periods, the firm saw varying losses, recording net losses of $15.4 million, $2.4 million, and $9.2 million, respectively.

Business

RUBI must compete for advertising spending and supply of advertising inventory with numerous other firms, some of which have significant technical or financial advantages over RUBI, such as Google (NASDAQ:GOOG).

RUBI must continually account for changes in laws related to internet access in various countries. The firm has already been forced to make changes preventing it from tracking user activity on some seller sites for American and German users, depriving it of data that it would use to fuel its algorithms.

Management

Founder Frank Addante has served as RUBI's CEO since 2007 and Chief Product Architect since October 2013. He has also served as a member and Chairman of the firm's board of directors since 2007. Mr. Addante previously founded email infrastructure provider StrongMail Systems, Inc. He also worked as CTO and Technology Founder of internet advertising firm L90.

It should be noted that while Mr. Addante received what we view as a reasonable total compensation of $547,520 in 2013, President Gregory R. Raifman received a total compensation of $4.4 million, and COO and CFO Todd Tappin received a total compensation of $3.4 million. We consider these latter figures outrageous for a firm losing millions of dollars for its shareholders.

Conclusion

We plan to avoid this IPO.

The firm has shown impressive revenue growth, and there certainly is demand for this type of advertising solution, but RUBI has yet to quell its significant losses - it might be able to do so if it didn't compensate its executives so excessively.

The firm faces stiff competition from other providers of similar services, and we can hardly pick RUBI against Google.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in RUBI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.