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Breakout Digital Advertising IPO

Written By Brian Hicks

Posted April 3, 2014

Digital Advertising firm Rubicon Project (NYSE: RUBI) has hit the market, and it’s creating quite a buzz. Vintage advertisements coke borax

Rubicon Project is an online advertising technology firm in Los Angeles, California. It has been wildly successful in the online marketing world by optimizing business owners’ revenues with advertising. Rubicon Project’s website says that it’s leading in the industry in automation advertising. Its mission is to automate advertising – the buying and selling of it.

The company has software that enables users to automate advertising between buyers and sellers. It’s quite powerful, and it makes life easier for advertisers because it tracks performance for them. With the performance trackers, buyers can see good buys and make money from them as well. The Advertising Automation Cloud is optimized to help both buyers and sellers.

Once its initial float hit the market, shares jumped 38 percent in the first day of trading. Not too shabby, especially when considering Wall Street’s ice cold reaction to similar IPOs in the past. Last year, for example, adtech companies Millennial Media, Marin Software, and Tremor Video all sank after going public, despite a broader market climb. In 2011, mobile advertising company Velti raised $150 million in its IPO with a debut price of $15.58. By 2013, Velti was bankrupt, and three months ago its stock was de-listed.

Has Adtech Crossed the Rubicon?

Maybe the string of bad adtech IPOs has finally come to an end.

One reason Rubicon had such a good jump the first day is that the offering price wasn’t exactly as high as it should have been. It could have been priced at upwards of $17 a share, but it ended up on the low end of forecasts at $15. Perceived bargains can mean everything to trading activity.

The company is selling 5.4 million shares and receiving $81.3 million in gross proceeds. The shares continue to increase by 22 percent to $18.30.

Investors looking to get into the online advertising space must understand the differences that exist between companies like Rubicon Project, and Google’s DoubleClick, for example. Ad exchanges and supply side platforms (SSPs) are different things, but Rubicon provides an overlap in functionality.

What’s the difference between them?

SSPs enable transactions and provide publishing tools, while exchanges only deal with the transactions. It’s what the digital world is evolving into. Ad-tech companies are coming into the industry with comprehensive packages of tools and services to serve clients better.

Some issues may come out of the merging of exchanges and SSPs though. As they merge, customers could start to lose track of which companies cater to advertisers, and which ones cater to publishers. As long as there can still be a clear distinction, it will work. If not, it will start to make people want to go with some other companies that have a better sense of the direction they are headed.

Rubicon Project has already had some industry-watchers raise their eyebrows. Some wonder if the company will be able to maintain its vision and ethos, especially since many ad-tech companies end up dabbling in some sketchy tactics to increase revenue flow.

According to CEO Frank Addante, there will be no management structure changes now that Rubicon Project has gone from private to public. He did mention that their transparency may have to be tightened up just a bit.

Previously, they were an open book that shared absolutely everything.

Regulations are now in place that prohibit such openness. Usually, the opposite is true for these types of companies.

Getting with the Changing Tide

As ad-tech companies blur the lines between exchanges and SSPs, is it time to jump in? It could be a good idea.

This is one of those instances where the future of the competitive landscape isn’t in question, but the nature of the individual competitors is. Rubicon Project entered the market at a value price, following a record first quarter, and managed to buck the trend of adtech IPOs taking a beating.

The market needed this, and it has come at a time when “Adtech Bubble” is finally off everyone’s lips.