Rubicon Grows Revenue, But Bid Shading Is Driving Down Publisher CPMs

Rubicon Project’s revenue increased 32% in Q4, earning $41.4 million on $301 million in ad spend. It met its goal for a positive adjusted EBITDA and, as a bonus, became cash flow positive a year ahead of projections. The news sent Rubicon’s stock up 15% in after-hours trading.

But Rubicon also noted pressure in its publisher CPMs in the fourth quarter. It’s a trend that will continue into Q1 2019 due to “buyer pricing tools in response to first-price auctions,” GDPR and fewer cookie-targetable impressions as a result of Apple’s Intelligent Tracking Prevention, said CEO Michael Barrett.

Buyer pricing tools – such as The Trade Desk’s Koa – use bid shading to reduce what buyers pay in programmatic first-price auctions. The Trade Desk said it reduced publisher CPMs by 20% with its tool, and Google also employs a bid shading tool for its buyers.

Different industry evolutions – such as the rise of ad networks and then programmatic – sometimes benefit one side before leveling out, Barrett explained to investors. The ultimate goal is “equilibrium.”

Rubicon said it is developing tools to help publishers weather this shift in pricing, marketing and monetization of CPMs.

Although CPMs are trending downward, Rubicon still expects 25% revenue growth in the coming quarter. Take rates will hover around the “mid-13s,” similar to the 13.8% posted in Q4 or the 12.8% a year ago, right after Rubicon eliminated buyer fees. Those fees subsidized publisher fees, and Rubicon always planned to recoup some of its fees when it renegotiated contracts, Barrett said.

Rise of video

Every DSP and SSP ups their video game, and Rubicon Project is no exception. Video accounted for 16% of 2018 advertising spend, or $156 million. Video revenue more than doubled over the previous year. Rubicon runs video ads across mobile web and app, desktop, connected TV and digital out of home.

Waiting on SPO

When Rubicon met with agency holding companies at the Consumer Electronics Show in January, the No. 1 topic was supply-path optimization. Buyers wanted to know how consolidating their spend across a few exchanges could benefit their cost structure and publishers, Barrett said. But Rubicon’s agitation for change – which it knows could dramatically move hundreds of millions of advertising dollars its way – hasn’t resulted in much action yet.

“We are positioned well to take advantage,” Barrett said, and noted that the company has probably been the “net beneficiary” of buyers' supply-path optimization efforts so far.

Rubicon is sunsetting a number of metrics this quarter. Going forward, it will only report on advertising revenue and take rates on an annual basis, similar to The Trade Desk – which adds a layer of opacity to its fees. 

Updated to correct Q4 2018 revenue and ad spend.

 

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