Los Angeles Business Journal

Online Ad Agency’s IPO Connects With Investors

INTERNET: Rubicon stock flourishes in contrast to other recent flotations. By Matt Pressberg Monday, April 21, 2014

Other recent technology-oriented initial public offerings have fizzled lately. Irish social media game-maker King Digital Entertainment’s stock dropped 16 percent on its first trading day. Call center software company Five9 Inc. in San Ramon had to price its IPO below its advertised range and its shares have been virtually flat since.

However, Internet ad firm Rubicon Project Inc. in Playa Vista has bucked that trend, as investors wanted a piece of its fast-growing business. The company raised $102 million in its April 2 IPO, and its shares jumped 34 percent that day from their offering price of $15.

Rubicon has continued to climb, rising 3 percent during the week ended April 16 to close at $20.69, making it one of the biggest gainers on the LABJ Stock Index. (See page 56.) The stock has risen 46 percent since its IPO.

Rubicon provides buyers and sellers of Internet ads an automated virtual marketplace for real-time transactions. It counts 700 publishers and 100,000 global brands among its customers, who use the platform to find business partners. According to a recent report by Internet research firm ComScore in Reston, Va., Rubicon’s ads reach 97 percent of U.S. Internet users each month.

The company’s 35-year-old chief executive, Frank Addante, said there was a “$100 billion market opportunity” to automate Internet advertising in an interview with Forbes on the day of the IPO.

Rubicon declined to comment to the Business Journal for this article, citing the quiet period mandated by the Securities and Exchange Commission surrounding a firm’s IPO.

Rubicon’s revenue has been soaring, hitting $84 million last year compared with $57 million in 2012. But Rubicon has yet to turn a profit. It reported a net loss of $9.2 million last year, compared with a loss of $2.4 million in 2012.

However, the business appears to be turning a corner. In the fourth quarter of last year, Rubicon earned $28 million in revenue, its best quarter ever, and it hit the break-even point.

The company isn’t currently profitable because it’s making big investments in marketing and technology as management tries to scale the business. But its gross margin, revenue minus its direct cost, which many investors look at to judge the fundamental health of a business, was a robust 82 percent in 2013. That might explain some of the investor enthusiasm for a money-losing company.