IPO Preview: Rubicon Project

Apr. 2.14 | About: The Rubicon (RUBI)

Summary

A technology company on a mission to automate the buying and selling of advertising.

RUBI’s Advertising Automation Cloud features applications for digital advertising sellers.

Compare with Rocket Fuel (FUEL).

Based in Los Angeles, CA, The Rubicon Project (NYSE:RUBI) scheduled a $108 million IPO on the NYSE with a market capitalization of $556 million at a price range midpoint of $16 for Wednesday, April 2, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Joint managers: Morgan Stanley, Goldman Sachs, RBC Capital Markets

Co-Managers: Needham & Co., Oppenheimer & Co., LUMA Securities

End of lockup (180 days): Monday, September 29, 2014

End of 25-day quiet period: Monday, April 28, 2014

Summary

RUBI is a technology company on a mission to automate the buying and selling of advertising.

Valuation

Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

Annualizing Dec qtr

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Rubicon Project (The)

$555

4.9

-3751.4

5.4

5.3

20%

(Close to breakeven)

Compare

Rocket Fuel (NASDAQ:FUEL)

$1,650

4.8

-191.0

11.5

11.5

Click to enlarge

Conclusion

FUEL is off 10% in the last three trading days, so the rating on RUBI is neutral at the price range mid-point. 20% of the IPO is going to shareholders.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

RUBI is a technology company on a mission to automate the buying and selling of advertising.

RUBI's Advertising Automation Cloud is a highly scalable software platform that powers and optimizes a leading marketplace for the real time trading of digital advertising between buyers and sellers.

Driven by big data analytics & algorithms

Through the speed and big data analytics of its algorithm-based solution, RUBI has transformed the cumbersome, complex process of buying and selling digital advertising into a seamless automated process that optimizes results for both buyers and sellers.

Buyers of digital advertising use its platform to reach 97% of Internet users in the United States and over 600 million Internet users globally on some of the world's leading websites and applications.

Sellers of digital advertising use RUBI's platform to maximize revenue from advertising, decrease costs and protect their brands and user experience, while accessing a global market of buyers representing over 100,000 brands since RUBI's inception.

The benefits RUBI provides to both buyers and sellers, and the time and effort spent by both buyers and sellers to integrate with its platform and associated applications, give it a critical position in the digital advertising ecosystem.

RUBI's Advertising Automation Cloud

RUBI's Advertising Automation Cloud incorporates proprietary machine-learning algorithms, sophisticated data processing, high volume storage, detailed analytics capabilities, and a distributed infrastructure.

RUBI analyzes billions of data points in real time to enable its solution to make approximately 300 data-driven decisions per transaction in milliseconds, and to execute up to 2.5 million peak queries per second, approximately 25 billion transactions per week and 3 trillion bid requests per month.

RUBI's Advertising Automation Cloud features applications for digital advertising sellers, including websites, applications and other digital media properties, to sell their advertising inventory; applications for buyers, including demand side platforms, or DSPs, ad networks and advertising agencies, to buy advertising inventory; and an exchange over which such transactions are executed.

Together, these features power and optimize a comprehensive, transparent, independent advertising marketplace that brings buyers and sellers together and facilitates intelligent decision-making and automated transaction execution for the advertising inventory RUBI manages on its platform.

RUBI believes it helps increase the volume and effectiveness of advertising, increasing revenue for sellers and improving return on advertising investment for buyers.

Direct Relationships

RUBI has direct relationships built on technical integration with over 700 sellers of digital advertising, including approximately 40% of the U.S. comScore 100.

RUBI believes that its direct relationships and integration with sellers, which differentiate it from many other participants in the advertising ecosystem, make it a vital participant in the digital advertising industry.

Its integration of sellers into RUBI's platform gives sellers the ability to monetize a full variety and volume of inventory.

At the same time, buyers leverage its platform to manage their advertising spending, simplify order management and campaign tracking, obtain actionable insights into audiences for their advertising and access impression level purchasing from hundreds of sellers.

RUBI believes buyers need its platform because of its powerful solution and its direct relationships and integration with some of the world's largest websites and applications.

RUBI's solution is constantly self-optimizing based on its ability to analyze and learn from vast volumes of data.

The additional data RUBI obtains from the volume of transactions on its platform helps make its machine-learning algorithms more intelligent, leading to higher quality matching.

Seasonality

Many advertisers devote a disproportionate amount of their advertising budgets to the fourth quarter of the calendar year to coincide with increased holiday purchasing.

Moreover, advertising inventory in the fourth quarter may be more expensive due to increased demand for advertising inventory.

Seasonal fluctuations historically have been less apparent due to historical revenue growth, but if RUBI's growth rate declines or seasonal spending becomes more pronounced, seasonality could result in material fluctuations of revenue, cash flow, operating results and other key operating and financial measures from period to period.

Dividend Policy

No dividends are planned.

Intellectual Property

RUBI had three active U.S. patents. Additionally, RUBI has one pending provisional application and six pending non-provisional applications in the United States and three pending non-U.S. applications.

None of these patents has been litigated and RUBI is not licensing any of the patents.

Their importance to RUBI's business is uncertain and there are no guarantees that any of the patents will serve as protection for its technology or market in the United States or any other country in which an application has been filed.

U.S. Patent No. 8,554,683, titled Content Security for Real-Time Bidding, was filed January 7, 2011, issued October 8, 2013, and expires in June 2028. U.S. Patent No. 8,472,728, titled System and Method for Identifying and Characterizing Content within Electronic Files Using Example Sets, was filed October 30, 2009, issued June 25, 2013, and expires July 2031. U.S. Patent No. 8,473,346, titled Ad Network Optimization System and Method Thereof, was filed September 1, 2009, issued June 25, 2013, and expires February 2031.

Competition

RUBI competes for buyer spending against many digital media companies, including Google (NASDAQ:GOOG).

RUBI competes for advertising inventory with SSPs and advertising exchanges. As RUBI introduces new offerings, as its existing offerings evolve, or as other companies introduce new products and services, RUBI may be subject to additional competition.

RUBI competes for advertising spending and seller inventory made available on its platform. RUBI's product must remain competitive in terms of ease of use, scalability, speed, brand security, customer service and other technological features that assist buyers in increasing the return on their advertising investment.

RUBI competes for digital advertising inventory based on its ability to maximize the value of sellers' inventory, provide the greatest array of product components covering their various inventory types and increase fill rates.

5% stockholders

Frank Addante 10.5%

Entities affiliated with Clearstone Venture Partners 21.7%

News Corporation 19.3%

Entities affiliated with Mayfield Fund 14.2%

Sumant Mandal 21.7%

Use of proceeds

Shareholders expect to sell 20% of the IPO. RUBI itself expects to net $77 million from its IPO. Proceeds are allocated as follows:

- In short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

- For general corporate purposes, including working capital, sales and marketing activities, engineering initiatives including enhancement of RUBI's solution and investment in technology and development, general and administrative expenses and capital expenditures. RUBI expects to use a portion of the net proceeds from this offering to hire additional personnel in connection with the activities described in the previous sentence.

Disclaimer: This RUBI IPO report is based on a reading and analysis of RUBI's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.