Contact: Scott Denne
Ad-exchange operator Rubicon Project has filed its IPO, lining itself up to be the latest new ad-tech offering in the public markets. Even though that market has been volatile and, sometimes, unforgiving, we see an IPO as the most likely near-term exit for the company’s investors. Prices for all the recent ad-tech entrants are trending downward, with half down more than 20% from their debuts. Unlike those vendors, Rubicon is on the opposite side of the advertising business. It runs an exchange where publishers place ad inventory for real-time bidding by ad agencies and networks like Criteo and Rocket Fuel.
Rubicon also captures a larger share of ad spending through its ad exchange than any of its recently public peers; although, because it is an ad exchange, it keeps a smaller portion of that spending: about 15%, compared with about a 40% benchmark for buy-side ad businesses. Rocket Fuel and Criteo trade at roughly 9x and 3x trailing revenue, respectively. Given that Rubicon Project’s posted growth rates are half of what those companies boast, we’d expect it to begin trading somewhere between 5-7x its trailing revenue of $75m, giving it a market cap between $375m and $525m.
Although ad-tech offerings have been volatile – Rocket Fuel, for example, has seen its shares plummet 20% two times since its September IPO, followed by a move back into positive territory, and Criteo has seen similar patterns – the dearth of buyers makes an IPO the best potential for liquidity for Rubicon’s investors and employees. (We understand Rubicon was talking to investors last year about a secondary offering.) Owning an ad exchange is of little value to anyone except the largest Web publishers (Google, Yahoo, Twitter, etc.), and those companies have all built or bought one of their own.
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