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Why The Rubicon Project, Inc. Plunged Today

By Anders Bylund – Nov 3, 2016 at 1:49PM

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The online ad-sales manager delivered a fine third quarter but followed up with a gloomy view of the near future.

Image source: Getty Images.

What happened

Shares of The Rubicon Project (MGNI 0.99%) fell as much as 17.3% on Thursday morning. The operator of online advertising services released third-quarter earnings on Wednesday night, beating analyst expectations but following up with a dim view of the upcoming fourth quarter.

So what

In the third quarter, Rubicon Project saw adjusted earnings rising 39% year-over-year to $0.32 per diluted share. GAAP (generally accepted accounting principles) revenue increased 2%, landing at $65.8 million. Analysts would have settled for earnings of $0.09 per share on sales near $63 million, so Rubicon Project exceeded the Street's projections by a wide margin.

On the other hand, management reduced its full-year revenue guidance again, this time centering that range on $276 million. That's down from the roughly $290 million target Rubicon Project posted three months ago -- and that was a reduction from an original target of $335 million.

On the upside, the bottom-line guidance now points to earnings of approximately $0.90 per share, up from $0.80 per share as of the second-quarter report. But investors focused on the top line and gave the stock a severe haircut.

Now what

To explain the weakening sales trend, management pointed to a variety of negative factors. Chief among them, ad sales designed for traditional web pages -- both desktop and mobile -- are shrinking across the board. Rubicon Project is doing well in ads for mobile in-app experiences, but less so when the user has to fire up a web browser of any kind.

The stock has now lost 61% of its value so far in 2016, struggling to find a new direction. CEO Frank Addante hopes to turn the shifting market sands into an opportunity, built around the app-based advertising market. Sales in that segment increased by 69% from the year-ago period, so it may be too early to call Rubicon Project a lost cause.

That said, a turnaround from this dark pit will require excellent execution in the coming quarters and years. That's asking a lot from a management team that had to reduce its sales goals twice in the span of three short quarters. I'll watch from the sidelines.

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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