Ad tech company Rubicon Project's stock is tanking after it admitted it had been slow to jump on the header bidding trend (RUBI)

Ad tech company The Rubicon Project saw its stock drop more than 30% in trading on Wednesday as analyst downgrades spooked investors.

The stock had opened at $9.50 but fell to a low of $9.00. The price was $9.23 at the time of writing.

Investing.com

Rubicon Project reported its second quarter earnings on Tuesday. AdExchanger reported the company admitted it had been slow to adopt the new ad tech trend of header bidding, which had seen its desktop revenue decline 2% in the quarter and prompted the firm to lower its revenue guidance for the year.

Header bidding essentially lets Google's ad tech rivals jump to the front of the line in the contest for ad tech slots. A report from BI Intelligence published earlier this year suggested almost 70% of publishers claim to have adopted header bidding technology, compared to almost zero two years ago. Many ad tech companies in recent months have credited header bidding for boosting their revenues.

Investing.comHowever, Rubicon's header bidding product — FastLane — only launched in October last year, months after other ad tech companies had rolled out their alternatives.

Another challenge Rubicon Project came across in its second quarter was within its "intent marketing business," which it entered last year following the $122 million acquisition of search ad and retargeting company Chango in April. Rubicon Project says Chango is now lowering its fees and focusing on a new model called "guaranteed audiences," as AdExchanger reported.

Rubicon Project's revenue grew 34% to $65.1 million in the quarter, surpassing analysts' expectations of $63.5 million. Adjusted earnings came in at 17 cents per share, ahead of analysts' expectations of 10 cents per share. The company also reduced its net losses to $2.7 million from $11.9 million in the year-ago quarter.

However, despite exceeding expectations, a number of analysts downgraded the company's stock on Tuesday — nearly all of them citing header bidding as the main concern about the ad tech firm's future growth..

In a note titled "Moving to the sidelines on RUBI," analysts at RBC Capital Markets adjusted the stock from Outperform to Perform.

RBC said in a research note: "We were on the wrong side of this one. RUBI is beginning a meaningful business transition since it has encountered the 'perfect storm' of a quicker than expected slow-down in Desktop display advertising coupled with a faster than expected pick-up in header bidding."

SunTrust downgraded Rubicon Project's stock to Neutral.

In a note to clients, SunTrust said: "We have been wrong on RUBI. The header bidding (HB) headwind we flagged in our 6/23 hosted call and recent preview has manifested much faster and more disruptive than anticipated."

Citi also moved Rubicon Project's stock from Buy to Neutral.

In a note, its analysts said:

"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. Our Buy rating was predicated on our view that take rates would remain stable (which they have) and that a full-stack offering is what is needed to win in the ad tech game long-term (which is still our view). What we didn’t anticipate, however, was a slowdown in revenue growth to the extent that management is now suggesting. 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."

Here's how some of the other analysts reacted:

• Raymond James: Downgrade to Market Perform from Netural
• Oppenheimer: Downgrade to Perform
• B Riley: No move at Buy
• Morgan Stanley: No move at Equal-weight
• Boenning & Scattergood: Downgrade to Neutral from Outperform
• Cantor Fitzgerald: Downgrade to Hold from Buy
• Craig-Hallum: No move at Buy
• Needham: Downgrade to Hold from Buy

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