Rubicon Project (RUBI) – My Quarter-End R

The Rubicon Project (RUBI) – My Quarter-End Review

Who is Rubicon?
Rubicon was founded in 2007 (just before the Great Recession), and is headquartered in Los Angeles. It’s an Ad Tech company and you can think of it as Criteo (CRTO) on steroids!!! Its market cap is $680 million, so it’s a small cap. It has plenty of liquidity.

Rubicon engages in automating the buying and selling of advertising. The company offers advertising automation platform that creates and powers a marketplace for buyers and sellers to readily buy and sell advertising at scale. Its advertising automation platform features applications for digital advertising sellers, including Websites, mobile applications, and other digital media properties to sell their advertising inventory; applications and services for buyers comprising advertisers, agencies, agency trading desks, demand side platforms, and ad networks to buy advertising inventory; and a marketplace over which such transactions are executed.

Founded in 2007? When was its IPO?
It had its IPO in April, 2014. The IPO was priced at $15, and the stock finished the first day trading over $20. Its high the past 52 weeks was about $20.40 about a week ago, and it crashed after its earnings report this week and is now at about $14.15, down about 30% since earnings.

Holy Mackerel! Down 30% after earnings? What kind of terrible results did it have? Well, lets see:
Its revenue was only up about 81%, so that may have had something to do with it.
And its earnings went from 2 cents the year before to only 31 cents this year. (Guidance was for 3 cents, I think, or something ridiculous like that). I get that as earnings up only 1450% from 2015’s Mar quarter to 2016’s Mar quarter. That may have contributed too.

Their trailing earnings are now $1.32, so they are at a PE of 10.7, which must be enormously high for a company that:
only grew annual revenue by 82% in 2015 over 2014, and
only grew earnings by 415% from 20 cents to $1.03.

That high PE may have contributed to the sell-off as well.

So what DID happen???
What happened is that they refused to increase their guidance so the analysts got very annoyed.

Look, I found out about this company from an article by Bert Hochfeld:…

The article is called Rubicon, The Strange Case of the Always Conservative Guidance. That pretty much says it all. As Bert says, since it’s been a public company it has beat guidance by more than 100% EACH quarter - the smallest upside was 14 cents on an expectation of a two cent loss. The December quarter, the quarter before this one, they earned 72 cents on an expectation of 33 cents. As Bert explained it:

At the end of the day, my own impression, for what it is worth, is one of a company almost afraid of the success it has achieved… It’s nice to be conservative about guidance. It’s better to be reasonable, however.

My own impression is of a CFO who is probably obsessive-compulsive, certainly obsessively cautious, and deathly afraid to ever overestimate. When confronted by howling analysts in the conference call, his reasoning for refusing to raise estimates to something reasonable, boils down to something like this:

“Four or five months ago, when we made our estimates for 2016, I estimated what our customers’ ad spend would be for the year. The first quarter was a lot bigger than I expected, so I assume some of the spend must have come from the other quarters and got pushed into the first quarter to make it so big… but I’m assuming that the yearly spend hasn’t changed, in spite of all evidence to the contrary, so I am figuring on the yearly spend staying at just what I guessed five months ago. Now the June quarter is usually 22% of the yearly spend, so I’m basing my guidance for the June quarter on 22% of that exact amount for the year that I guessed five months ago. The fact that I’ve underestimated by over 100% every quarter won’t sway me at all.”

However, this company is knocking the ball out of the park on every metric possible.

How can I learn more about this odd little company?
Read Bert’s article that I linked to above. It’s very thorough, very complete, and very incisive.

How does Rubicon compare to Criteo?
It’s smaller, but growing a lot faster. Here’s Bert’s comparison:

Rubicon in the US is the 600-pound gorilla of the independent providers of ad automation solutions. It does have one competitor, Criteo, based in France, that is somewhat larger and has a similar set of solutions. Criteo’s 2015 was also very strong with constant currency growth of 46%. It has significantly lower EBITDA margins than Rubicon. Criteo uses a different targeting technique. Rubicon and Criteo can readily coexist in a burgeoning market where both of them were able to grow at least 40%.

What’s your history with Rubicon?
This was one of those tiny anonymous put-it-on-the-radar positions I had at the end of the month. After earnings I added from about $19.20 down to about $15.15. I have about a 2.8% position now.

What are the risks?
Primarily that Facebook or Google might take it on themselves to build their own platforms and compete with Rubicon and Criteo. This is offset by the fact that the advertisers probably wouldn’t be willing to let Google, for instance, be both the broker and also the place where the ad is shown, which would give them too much power over the advertiser.

Growing very fast, quite profitable, good margins, with a low PE and bizarrely low guidance, which will probably continue as long as they have the same CFO. I think it’s worth a small position at least. It’s hard to see much more downside with a PE under 11 and a rate of growth of revenue at over 80%, and earnings over 100%, but what do I know? I never would have dreamt it would get to where it is.



For Knowledgebase for this board,
please go to Post #17774, 17775 and 17776.
We had to post it in three parts this time.

A link to the Knowledgebase is also at the top of the Announcements column
on the right side of every page on this board


Nice find Saul. I will check it out as I like the space and CRTO.


Nice find Saul. I will check it out as I like the space and CRTO.
Cheers, Ant

Glad you like it, Ant.


It’s hard to see much more downside with a PE under 11 and a rate of growth of revenue at over 80%, and earnings over 100%, but what do I know?

PE’s can be a frustrating thing to me. Why is NFLX’s 300+ and LGIH’s is 11ish? LGIH is the faster-growing company. More risk? It’s practically a price difference of 30 to 1!

Why does a company that seems to be going nowhere, like KO, sport a PE close to 30?

SKX has gone down in price about 10% in the last few weeks…and I know the S&P has lost a few % points itself, but this just seems asinine to me. SKX just had an incredible quarter and has had a string of a bunch of incredible quarters and shows no sign of slowing down. Why do they have a PE around 17 – about the same or even slightly below the PE of SHOO – which hasn’t grown materially in years!?

I have always liked the quote (was it Keynes?) that goes: “The market can stay irrational longer than you can stay solvent.” So maybe I’m asking some questions that can’t be answered. But in your vast experience, Saul, what have you learned about how PE’s do or don’t get sorted out over time, in companies that keep growing and performing well every quarter? And how do you make sense of it in the meantime?


Thanks for the heads up Saul. I like Bert H. whom you introduced to us/me awhile back.

I like the CRTO business model too ( RB rec). Though I need to better understand how it works. I never opened a position with CRTO.

Now I will read Bert’s piece.


I looked at Revenues and earnings for the past 8 quarters and read Hochfeld’s article. The numbers are absolutely incredible and the continued conservative guidance is downright puzzling.

The numbers nearly seem to good to be true. I’m not suggesting that is the case.

If RUBI was brought forward recently, I missed it and am glad I’ve seen it now.

I wanted to bring up one thing I noted from the CRTO call and Hochfeld’s piece - Header Bidding. CRTO was asked about header bidding in the Q&A session. As I recall, the question revolved around whether header bidding would cause a conflict with publishers. CRTO shrugged it off and I believe with good reason. They claimed if it was causing a problem, they wouldn’t have added 2,300 publishers in the quarter.

However, I note RUBI is the leader in header bidding. This sounds like an area where CRTO does not play.

Hochfeld stated the ad tech space has room for multiple players. I’ve had a small investment in CRTO and will be considering RUBI too.

Thanks again,


RUBI details from Mar 2015 thread on this board.…


Here are the stock based compensation expense numbers (in thousands $):

2011: $ 2,268
2012: $ 3,044
2013: $ 6,352
2014: $ 23,846
2015: $ 30,584

As a percentage of revenue they were:

2011: 6.12%
2012: 5.33%
2013: 7.58%
2014: 19.03%
2015: 12.31%

Last 2 years seem unreasonably high. I haven’t looked into the reasons.



I haven’t looked into the reasons.
Because people who are in a position to award themselves free money like receiving free money and troughing their snouts in it for all its worth?
Just a guess.
Or maybe the units remained the same but the SP went up from pre-IPO to post IPO and so the value of stock compensation went up faster than revenues.

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The diluted share count at the end of 2015 was 44.495M shares. The guidance for 2016 (given after Q4) was for 58M shares so they expect to dilute another 30% in just one year. A lot of growth has to happen just to maintain earnings per share equal to 2015.


Ughh that’s a lot of snouts in the trough!


It is a 1 to 3 year horizon, IMO.

maybe the insider executives actually want to keep the stock price low until they can award themselves with yet more shares. After they have filled their pockets, then it is time for the P/E to increase.

Or maybe the CFO is right.

More reasons , from the link

Either the opportunity is far smaller than observers have been led to believe or the space is becoming far more competitive or management simply doesn’t want the troubles that can emanate from frothy expectations.

Being unconvinced that this Bull has a lot of time left I have lightened up on my equity exposure .
But this one sounds interesting , even though I hope my refrigerator never talks to me.