NEW YORK ( TheDeal) -- Following Verizon Communications' ( VZ) purchase of AOL ( AOL), advertising technology provider Rubicon Project ( RUBI) looks particularly attractive as a potential takeout candidate, given its clean track record and specialty in programmatic advertising, according to industry observers.
Verizon Communications announced May 12 that it has agreed to purchase AOL for about $4.4 billion in a move to expand its footprint in advertising technology and digital content platforms. "I think it's a smart move from Verizon," said Tristan Snyder, vice president of Intrepid Investment Bankers's digital media and technology group. Snyder explained that content is key for anyone who wants to be in media or digital marketing, adding that video content is "the most effective and most valuable form of marketing content.
"AOL is a very, very large programmatic ad platform, and that's going to drive a lot of margin growth. It's evident that programmatic is continuing to grow," he added, referring to technology that allows for automated buying and selling of digital advertisements. "Programmatic is here to stay."
Programmatic advertising involves using software to automate purchasing and selling of digital ads, also called impressions, compared to using more traditional, human-driven methods.
"Somebody else thinks they need [ad tech] in order to compete against Verizon, and Rubicon becomes a target," said Richard Tullo, director of research at Albert, Fried & Co., adding that from Verizon's perspective, AOL's ad network was likely one of the big drivers of the transaction.
Among ad tech companies, Rubicon has carved out a nice niche in programmatic advertising and display advertising, he added.
"There are about a dozen ad networks out there. If I was really kind of looking at real-time [bidding] catering to programmatic strategy of buying ads, I'd favor Rubicon over DoubleClick," Tullo said, speaking of Google's ( GOOG) ad tech subsidiary DoubleClick.
Real-time bidding, or RTB, refers to bidding for online ad impressions between ad sellers and ad buyers.
While Rubicon Project isn't under pressure to shop itself, it could attract a price tag of about $1 billion, or four to six times its annual revenue, he explained.
A handful of ad tech companies have pursued initial public offerings in recent years, but haven't fared well in the public market.
For instance, stock of Millennial Media ( MM) is down about 92% since the company's IPO in 2012. Since going public in 2013, Rocket Fuel ( FUEL) has seen its shares plummet approximately 85%. Tremor Video ( TRMR) also pursued an IPO in 2013, and shares have dropped nearly 70% since then. Stock of YuMe ( YUME) have gone down 44% since the 2013 IPO.
Rubicon Project has seen its shares go down by 13% since its IPO last April, but the stock has been on its way up since last fall. Shares are up about 23% on a six-month basis and up about 8% year-to-date.
The ad tech company with a market capitalization of about $744.7 million has also sealed three acquisitions since going public, having grabbed Chango, iSocket and Shiny Ads.
In fact, Rubicon is one of the few stable, profitable companies with cash flow in the ad tech space, said RBC Capital Markets analyst Rohit Kulkarni.
"It has steady Ebitda margins and would be easy to acquire," he said of Rubicon, adding that in addition to Rubicon, Paris-based Criteo ( CRTO) is another player in the space that fits such category. But between the two, Rubicon is relatively small and fairly acquirable compared to Criteo that has a market cap of nearly $3 billion, he said.