Citi: Buy Rubicon Project, Sell Rocket Fuel In SMID-Cap Internet

Citi started The Rubicon Project Inc RUBI with a Buy rating and $26 price target, while initiating Rocket Fuel Inc FUEL with a Sell rating and target price of $2.50.

Rubicon Project

On Rubicon Project, analyst Mark Kelley said, "We view the company as best positioned to benefit from programmatic growth of 30+ percent with its full-stack offering. We see limited take rate risk as its DSP becomes a bigger part of the mix (Buyer Cloud). Our CY17 Adjusted EBITDA estimates are ~10 percent above consensus."

Kelley added that Rubicon's "full suite offering across channels (desktop, mobile, etc.), ad formats (display, video, retargeting, etc.), and transaction types (Orders, RTB, and Static) leaves it well positioned to continue gaining share in programmatic."

Related Link: Cantor Fitzgerald Initiates The Rubicon Project With Buy Rating, $22 Target

"RUBI is admittedly a consensus long, but we see upside to our above Street estimates, which are at the high end of CY16 guidance, and see a beat and raise scenario playing out over the year."

Rocket Fuel

On Rocket Fuel, Kelley noted, "We see to consensus estimates driven by lower take rates vs. the street and declining revenues in a programmatic market that is growing 30+ percent. Our net revenue estimates are ~10 percent below consensus, driven primarily by our assumptions for take rates vs. the Street."

The analyst said, "Rocket Fuel's transition to SaaS is still under-way, and consensus take rates are too high and actually reach all-time highs in 2017."

"Revenues declined exiting CY15 and we're looking for continued declines in CY16 vs. a programmatic market that is growing at a 30+ percent. Transition to SaaS may prove more difficult: Self-serve model requires a large increase in gross revenue to generate the same amount of net revenue," Kelley wrote in a note to clients.

Stock Performance

Shares of Rubicon Project closed Monday's regular trading down 0.27 percent at $18.60, while Rocket Fuel closed Monday's trading at $3.01, down 0.99 percent. In the pre-market hours, Rocket Fuel shares further declined 3.65 percent to $2.90.