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Bull Of The Day: The Rubicon Project (RUBI)

The Rubicon Project (RUBI), a leading advertising exchange, has driven its company back to growth after a couple of transitional years. RUBI experienced a substantial reversal since it bottomed out in 2018. These shares have rallied over 390%, following their $1.50 low in Q1 of 2018 (shown below compared to the S&P 500 in red). Analysts are now raising their EPS expectations for this cutting-edge ad exchange following an announced merger with Telaria (TLRA). This strategic merger has given investors and analysts a renewed sense of enthusiasm for RUBI, propelling this stock into a Zacks Rank #1 (Strong Buy).

The world of advertising is evolving into an industry underlined by digitalization and consolidation. The era of traditional advertising is over, and data-driven, code backed ads are now controlling the space. This has created a significant opportunity for digitalized ad exchanges like The Rubicon Project to help media companies manage and fill their advertising space so that publishers can effectively monetize their content.

Rubicon Project hit a speed bump over the last few years with their late transition from the “waterfall” auction to the header bidding. This pivot in ad bidding evened the playing field for supply-side platforms (SSP), like Rubicon, who all previously competed fiercely for the top positioning in the “waterfall” chain of inventory access. Rubicon was a late adapter of this technology, causing the company and its investors to suffer from RUBI’s high of over $20 in 2016 to its low of $1.50 in 2018.

Today, The Rubicon Project is back on the road of redemption and is positioned to become the leading ad exchange. The change in management in 2017 completely shifted the focus of the company to a progressive model. Rubicon Project purchased nToggle, which streamlined buyers’ bids, and created a more effective platform for the company.

The Rubicon Project just announced it would be merging with Telaria on December 19th. Telaria is a leader in sell-side connected TV advertising and has most recently entered a deal to power Hulu’s (DIS) advertising content, which creates a substantial reliable revenue stream for the business. The combined firm will have excellent financials with no debt on its books and $150 million in cash. Together they brought in $217 million in sales over the last 12 months (through 2019 Q3), and I expect that the added synergies will progress that figure further than the standalone companies could.

Investors and analysts are enthusiastic about this merger with RUBI, rallying 12% since the announcement and TLRA share drove up even further with 16% gains. RUBI is trading at a discount to TLRA with a forward P/S of 2.5x and 5.6x, respectively. There should be more room for shares of The Rubicon Project to run, especially when considering its double-digit topline growth outlook and expected 2020 profitability (as a standalone company).

Take Away

The Rubicon Project has a great management team headed by Michael Barrett (will maintain his position in the merger) with proven strategies that have brought this company back from the depths of investors’ concerns. Analysts are excited about the merger with Telaria, and so am I. The combined firm will have a diverse portfolio of sell-side ad services that will make it a one-stop-shop for all media platforms to monetize their offerings.

Rubicon + Telaria merger will position the combined company at the helm of the SSP market. The deal is expected to be completed in the first half of 2020.

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