Rubicon: Surprising to the Upside on All Fronts

This post is excerpted from a letter by MOI Global instructor Jim Roumell, partner and portfolio manager of Roumell Asset Management, based in Chevy Chase, Maryland.

For the third consecutive quarter, Rubicon surprised to the upside on all fronts: revenue, take-rates and profitability. RUBI’s revenue grew over 30% and the company’s take-rate (commission earned on the advertising spend occurring on its marketplace) approached 14%, up from 11.3% eighteen months ago. The result was profitability for the first time in nearly two years as RUBI generated $10 million in EBITDA in the fourth quarter.

The consensus view just eighteen months ago was that RUBI was a legacy ad-tech firm destined to join the dust-heap of history. At that time, the company’s shares traded at a negative enterprise value and RAM loaded-up. Today, ad agencies and publishers (digital properties selling advertisements), are increasingly turning to RUBI to monetize their advertising inventory. To wit, RUBI’s APS (amount paid to sellers) was $867 million in 2018, up over 25% YOY and the largest in the company’s history.

How did RUBI do it? Two years ago, the company made a particularly savvy acquisition in nToggle, a high-powered algorithm technology curating advertisements in a way that eliminates low-value impressions and funnels high-value ones for buyers. Second, the company hired Michael Barrett as CEO. Michael boldly eliminated buyers-fees (the take-rate used to be driven by a fee to both buyers and sellers), setting a new industry-standard for transparency. In fact, RUBI has become a highly trusted partner in an industry marred by a lack of transparency. Its management team and board deserve great credit in executing a fabulous turnaround.

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