Rubicon's Headwinds Cause A 35% Price Target Cut From Citi; >27% Pre-Market Stock Drop

Although The Rubicon Project Inc RUBI reported another beat quarter, the CY16 guidance came in well below expectations.

Citi’s Mark Kelley downgraded the rating on the company from Buy to Neutral, while lowering the price target from $26 to $17.

Thoughts On The Stock

“Header Bidding is creating a bigger headwind than the company initially outlined a few months ago, particularly on desktop, as RUBI had focused more on mobile,” Kelley said.

The analyst stated that the slowdown in revenue growth was unexpected, at least to the level that management is now guiding to.

Related Link: Needham Downgrades The Rubicon Project To Hold

“Unfortunately, this has turned into a ‘show-me’ story, and we believe investors will need at least a few quarters of evidence that the tide has turned on share loss in order for shares to work again.”

On a more positive note, management offered greater transparency into the underlying fundamentals, which is likely to work in Rubicon Project’s favor when the turnaround occurs.

Results And Guidance

The company reported its 2Q16 non-GAAP revenue at $70.5 million, beating the estimate and the consensus, primarily driven by a better-than-anticipated take rate. The adjusted EBITDA of $18.4 was also meaningfully above expectations.

However, for CY16, the non-GAAP revenue guidance was lowered by 6 percent, while the adjusted EBITDA guidance was raised 7 percent. The non-GAAP EPS guidance was maintained, although it was below the estimate and consensus.

The non-GAAP revenue and adjusted EBITDA estimates for CY16 and CY17 have been lowered.

At time of writing, Rubicon Project was down 28.31 percent in Wednesday's pre-market session, trading at $9.80.

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