• by Tobi Elkin , Staff Writer @tobielkin, August 4, 2016

Rubicon Project’s CEO admitted it. On a second quarter earnings call on Tuesday with analysts, Frank Addante said the company was late to the party on header bidding.

Rubicon lost $234 million dollars in market cap, and that’s despite the fact that the company hit its revenue targets. Rubicon Project's revenue grew 34% to $65.1 million in Q2, 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, several analyst firms downgraded the stock, which dropped by more than 30% in trading on Wednesday. Analyst downgrades didn’t help: The stock opened at $9.50 but fell to $9.00 at one point. Today, the stock stood at $9.64 as of this writing.

While Rubicon hit its numbers and revenue forecasts, the problem is that desktop spending is decelerating through its tag on the ad server. This is because more inventory is being purchased ahead of Rubicon’s exchange via header-based technologies. Rubicon has lost market share to header integrations.

For example, say you have a 10-story building. On the top floor, you have premium ad inventory, which is the best. On the bottom floor, there’s remnant inventory that won’t sell easily. Rubicon doesn't have a header tag, it can't buy inventory on any floor of the building except the bottom floor with a kind of remnant exchange tag. Rubicon admits it was slow to react to the market and didn’t think it needed the header tag on the page. It didn’t see header integration as a strategic priority for the company, and so it fell behind. Rubicon didn’t respond to requests for comment by RTBlog’s deadline.

Companies like Amazon, Criteo, and Sonobi, to name a few, have integrated the header. Increasingly, many more transactions are happening via header integrations and thus, publishers are getting prioritized access to precious inventory that they might otherwise not see. Rubicon’s missing out on that. The company lost money by not getting into header bidding sooner—it entered the market with its offering in October 2015.

Some ad-tech observers say that upfront, “reserved guaranteed” inventory will compress the market even further. “We’re seeing the end state of what header bidding has done to disrupt business models,” one ad-tech executive told RTBlog. “The Rubicon exchange will be squeezed further as more publishers adopt header-based technology. As direct audience transactions begin to occur, more high-value buyers won’t ever make it to the Rubicon exchange,” he said.

Citi’s analyst went from “Buy” to “Neutral,” indicating in a note: "Header Bidding is creating a bigger headwind than the company initially outlined a few months ago, particularly on desktop, as Rubicon had focused more on mobile.”