Rocketfuel IPO


On September 20, 2013, Rocket Fuel IPO'd. It had a volatile couple months, and then cratered precipitously. The stock has yet to recover (see below).

Back in the halcyon early days of RTB, Rocket Fuel was indisputably a leader. It only raised around $75M before going public, and had demonstrated a consistent and significant top line revenue growth. In fact, Rocket Fuel may have had significantly higher revenue than its demand-side competitors, including Turn, MediaMath, etc.

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What happened?

No one knows for sure, but I believe it's a very unfortunate combination of situations. First, when a company goes public, there a few very important numbers and events. The ability of the company to successfully IPO at or above the range it had announced, the closing price of it's first day of trading - and each day for a few weeks (also the market), and the company's first earnings report. Companies that miss their first earnings report may be punished by reduced analyst coverage, which translates to reduced aggregate demand. On Jan 22 2014, their first earning's report came out. Gross revenue showed significant YoY growth, but the company sustained large and increases losses for the year. In May 2014, their second earnings report as a public company, they continued to showing a large - growing - top line, and ever-increasing overall losses.

Rocket Fuel developed a model that - while the media was transacted programmatically - they never developed programmatic relationships with their customers. This meant - by and large - campaigns were won on an IO-by-IO basis. This isn't a problem itself - BuzzFeed is in the same boat and has a solid valuation. But while Rocket Fuel had very high margins on their IOs, in part because of their technology, their business required very substantial marketing, sales, and R&D costs that made the company unable to generate a profit.

As mentioned, their first two earnings were disappointments, so analysts dropped coverage and interest as a whole waned. The complexity of ad tech only added to things, as did certain possibly-questionable practices around bots and fraud (, and their being shut off from Facebook's exchange. Most public market participants never really understood their business. Instead, they began to be see the company as a media company - because they had to rely only on IOs. As a result, the multiple of the business changed from being a technology company to that of a media company (which is significantly lower).

Rocket Fuel is still a large and important company in the space, doing over $111M in Q3 of 2015 in top-line revenue. This may actually represent a situation where the markets are incorrectly valuing a company (this isn't investment advice!!!). But as Keynes said "the market can stay irrational longer than you can stay solvent" - and people would actually have to come around and want to buy the company. We'll see what happens. But the first step was their replacing their founder CEO (George John) with someone that may be more focused on controlling costs and driving the company to an actual profit (Randy Wootton).

Here's their most recent quarterly report - it's interesting: