Rocket Fuel's IPO Soars

Oct.21.13 | About: Rocket Fuel (FUEL)

According to eMarketer's latest report, digital ad spending in the U.S. is expected to grow 15% over the year to $42.26 billion this year. Digital advertising will account for 25% of total media ad spending this year. Digital ad spending is projected to grow to $61.35 billion by 2017. This growth in spending is attributed to the increased adoption of mobile advertising.

Rocket Fuel's Offerings

Redwood City, California-based Rocket Fuel (NASDAQ:FUEL) was founded in 2008 by George John and Richard Frankel, who were both Yahoo alumni. They came together to create an organization that would simplify online marketing capabilities for advertisers. Today, their platform uses artificial intelligence and big data-driven predictive modeling solutions to automate the decision-making platform for advertisers.

The platform operates in real time and purchases ad spots and impressions on places like Nasdaq and the New York Stock Exchange to create portfolios of impressions that help maximize brand awareness for the company's advertisers. It is designed to optimize end customer purchase, thus reducing the cost of customer acquisition. By using artificial intelligence, Rocket Fuel is able to minimize manual configuration of the platform and ensure that it operates more than 1,000 ad campaigns simultaneously.

Rocket Fuel offers solutions for display, video, mobile, and social online advertising. Within display, its product helps run smarter campaigns that track metrics in real time to optimize ads on the go. For video advertising, its targeting process is able to post video ads on the right sites to ensure that these ads are more effective for being targeted at the right people. The platform also takes care of mobile device advertising by using local information to post effective ad campaigns. Finally, as part of social advertising, the platform uses real-time audience insights to deliver high-impact ads that help improve brand awareness. Customers include names like Lufthansa Airlines (OTCQX:DLAKF), Bridgestone (OTC:BRDCF), Vonage (NYSE:VG), and UCLA, to name a few.

Rocket Fuel's Financials

Rocket Fuel saw revenues grow from $16.5 million in 2010 to $106.6 million last year, translating to a compound annual growth rate of 154%. For the first half of this year, revenues grew 134% to $92.6 million. Despite this strong revenue growth, Rocket Fuel has yet to turn a profit. Net loss has widened from $3.2 million in 2010 to $10.3 million last year. For the six months ended June 2013, losses grew to $4.3 million from $1.2 million a year ago.

Till recently, Rocket Fuel had raised $76.6 million in funding from investors that included Mohr Davidow Ventures, Labrador Ventures, Wilson Sonsini Goodrich & Rosati, DLA Piper, MF Capital, Nokia Growth Partners, Northgate Capital, Summit Partners, and Comerica Bank. Last month, Rocket Fuel went public on the Nasdaq under the ticker FUEL when it raised $116 million by selling four million shares at $29 each. The stock has soared since and is trading at $61.23, with a market capitalization of $1.99 billion. It touched a high of $68.56 earlier this month.

eMarketer estimates digital advertising to be worth $61.35 billion by 2017. Researcher Magna Global has more aggressive estimates and projects digital advertising to grow to $73 billion by 2016. Rocket Fuel operates in a high-growth industry, but like other digital advertisers, it is dependent on the tech mogul, Google. Google has been mulling over replacing third-party cookies with an advertising-specific identifier. Most display advertisers rely on third-party cookies to assess and track consumer behavior. Google believes that by removing these cookies and replacing them with a smarter identifier, marketers will be able to offer more targeted ads. If Google were to go ahead with its plan, companies like Rocket Fuel will have to come up with a better solution to ensure that they are still able to deliver the highly targeted ads they boast of. This is definitely a significant risk for the company.