Future-Facing Rubicon Project CEO Positive Despite Continued Losses

Rubicon Project (NYSE:RUBI) released its Q2 2017 earnings after close of trading on 1 August, with a positive outlook coming from Rubicon CEO Michael Barrett, despite the company posting another quarter of losses.

Revenue missed expectations across the board at USD$42.9m (£32.5m) for the quarter, down 39% on the same period in 2016. Net loss was USD$11.6m (£8.8m), compared with a net loss of USD$2.6m (£1.96m) in the second quarter of 2016.

In terms of advertising spend, Q2 generated USD$204.4m (£154.8m) – down 21% year-on-year, primarily due to a drop in desktop spend, itself down 31% year-on-year. The positive story here came from mobile, which saw a 21% quarter-on-quarter increase, representing a 1% rise on the previous year, driven by mobile in-app, as explained by Rubicon CFO, David Day.

Michael Barrett, who has been in the CEO position five months, referred to 2017 as a ‘rebuilding year’ for the troubled business, as he focused on the details of their strategic plan in his address. Header bidding, mobile and, of course, Rubicon’s recent acquisition of nToggle featured heavily in Barrett’s presentation, where he outlined the company’s plans to deliver long-term shareholder value by the end of 2018.

USD$ millionsQ1 2016Q1 2017% Change
GAAP Revenue70.542.9(39)
   - Mobile GAAP Revenue24.419.2(21)
   - Desktop GAAP Revenue46.123.7(49)
Advertising Spend257.4204.4(21)
   - Mobile Advertising Spend8585.91
   - Desktop Advertising Spend172.4118.5(31)
Take Rate25.30%21%

Source: Rubicon Project

“Header bidding has shaped the role of the exchange and had a powerful impact on Rubicon Project”, explained Barrett. He said they are pleased with their progress to date and are optimistic in their goal of improving win rates. They have seen a significant increase in inventory volumes, as a result of header bidding, and have seen 50% more inventory come through their exchange, compared with the previous year. Rubicon’s bigger objective is to have all programmatic inventory available on its global ad exchange. Barrett added: “It might sound elementary, but to acquire inventory across all channels and incorporate it into a marketplace is not easy and is less of a focus for our key competitors.”

Barrett cited the recent onboarding of British Telecom and AccuWeather as big wins for the company, alongside the integration of Amazon Publisher Services’ Transparent Ad Marketplace header-bidding solution.

He also showed excitement about growth of emerging media opportunities for Rubicon, especially in digital out-of-home, which Barrett believes to be a key international growth area for them.Take rates were key in Barrett’s presentation, as Rubicon aims to move away from a modest volume, higher margin business, into a business with high volumes and competitive margins.

With a take rate (the percentage of a media buy kept by ad tech vendors after a publisher or media company gets paid, calculated as non-GAAP net revenue divided by advertising spend) of 21% at the end of the second quarter, it was down from 25% in the same period of the previous year, indicating Rubicon’s aim to become more competitive and build a more efficient marketplace is in motion.

“Buyers want to integrate with fewer exchanges and they need help managing total take rates”, explained Barrett. “We are looking to become the lowest ‘total cost per transaction’ provider.”

nToggle, the technology designed to streamline bid requests, which Rubicon bought for USD$38.5m (£29.1m) last month, featured heavily in Barrett’s presentation, as the company continues its move away from legacy smart tag technology to header bidding, on both the browser and server sides. nToggle will play a key role in this, as Rubicon looks to help DSPs reduce infrastructure costs, as they struggle to cope with the influx of bid requests as a direct result of header bidding.

Rubicon is positive about the future net revenue improvement that will be driven by nToggle: as an example, Barrett explained that if nToggle drives improvements of 10% in fill rates, it would result in USD$17m (£12.9m) in additional revenue generated, based on Q2 revenue run rate. This isn’t Rubicon’s target, but proof of how the fill rate improvement can positively impact the bottom line, so there are high hopes for the acquisition.

Rubicon hasn’t had it easy, and Q2 is no different, but Barrett is pragmatic about the future, expecting a three-year payback period from the nToggle acquisition. The question is, what will header bidding look like in three years, even one year, and will nToggle’s technology still have a role to play in that future? The naysayers pushing for Rubicon’s privatisation won't have been silenced just yet.