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Morgan Stanley Incrementally Cautious On Rubicon Project's Top Line Growth

While shares of The Rubicon Project Inc RUBI have surged, there are concerns surrounding the company’s topline growth and business sustainability in view of intensifying competition, Morgan Stanley’s Brian Nowak said in a report. He downgraded the rating on the company from Equal-weight to Underweight, while establishing a price target of $8, reflecting 9 percent downside.

Competitive Threats

Analyst Nowak expressed concern regarding Rubicon’s managed revenue growth into 2017 and beyond since the company is facing the risk of market share losses to smaller ad tech players like OpenX and Index Exchange, which have “more competitive offerings and header bidding functionality.”

Amazon.com, Inc. AMZN also represents a growing threat to Rubicon’s ability to “gain access to inventory and impressions across the web,” Nowak mentioned. The increase in digital ad dollars could be taken away by Alphabet Inc GOOGL and Facebook Inc FB, given their superior scale and ROI.

Weak Performance

Rubicon’s managed revenue has been under pressure in 2016, and growth is expected to decelerate from 26 percent in Q1 to 1 percent in Q4.

“Management has spoken of a turnaround highlighting that they plan to improve the company's "Fast Lane" header bidding offering, but we see high execution uncertain (given increasing competitive pressures) and believe any turnaround will take time (multiple quarters of product development, go to market, etc) to prove out,” the analyst wrote.

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DateFirmActionFromTo
Sep 2016Morgan StanleyDowngradesEqual-weightUnderweight
Aug 2016First AnalysisDowngradesOverweightEqual-weight
Aug 2016JefferiesMaintainsBuy

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