Three years ago, Rocket Fuel (NASDAQ:FUEL) went public with a market cap of about $2 billion. But today, its valuation has crashed to less than $90 million as it fails to deliver on revenue growth and profits.
Rocket Fuel's Financials
Redwood City-based Rocket Fuel was founded in 2008 by Yahoo alumni Abhinav Gupta, George John and Richard Frankel with a vision to create a platform that would become both a disruptive and an indispensable marketing tool for brands. The company was set up to simplify online marketing capabilities for advertisers. Its proprietary Moment Scoring platform offers a fully data-driven marketing solution to help with the programmatic marketing decisions across multiple channels and devices.
Last month, Rocket Fuel reported its third quarter results. Revenues for the quarter fell 2% over the year to $109.72 million. The company continued to report losses and ended with a loss of $0.24 per share for the quarter compared with $3.19 per share reported a year ago. Losses have fallen from $7 million a year ago to $3.6 million for the quarter. Adjusted loss per share came in at $0.08 per share. The market was looking for revenues of $109.7 million and an adjusted loss of $0.17 per share.
Revenues from North America fell 3% over the year to $90.9 million and revenues from outside North America grew 2% over the year to $18.8 million.
By segment, platform solutions revenues accounted for 19% of third quarter revenues compared with 8% a year ago. Media Services revenue accounted for 81% of the revenues compared with 92% a year ago.
The market is not too pleased with Rocket Fuel's growth. Revenues for 2015 were $461.64 million, up 13%. Continued R&D and sales and marketing costs have driven losses upwards as well. It ended 2015 with a net loss of $210.54 million compared with a net loss of $64 million a year ago.
Rocket Fuel's Growth Strategy
During the quarter, Rocket Fuel made significant progress on its strategic initiatives which include becoming a trusted platform partner, strengthening its brand advertising products and services, and extending its direct response advertising leadership across all media channels. It believes that by following down this path, it will be able to improve its profitability as well.
In order to become a trusted platform partner, it signed an agreement with a trading desk at one of the world's largest holding companies. Rocket Fuel did not divulge the name of the desk but it is convinced that the agreement will help its customers benefit from the full suite of programmatic buying solutions across its brand and direct response campaigns. It also entered into a partnership with IAS Enhanced Video Quality Metrics. The industry-leading partnership will allow Rocket Fuel and IAS to provide marketers with higher transparency and quality protection across video ads purchased programmatically.
It also entered into an agreement with Mediaocean, a leading media software company that automates every aspect of the advertising workflow and processes more than $125 billion in global media budgets annually. Through the partnership, Rocket Fuel will integrate Mediaocean's platform with its solutions to enable agencies to access Rocket Fuel directly. The integration will help position Rocket Fuel as a preferred partner for many of the world's leading holding companies.
Finally, it is investing heavily in strengthening its brand advertising products and services and extending its direct response leadership. As part of these initiatives, Rocket Fuel is transitioning from its primarily direct response tech solution into a full funnel self-serve platform solution which enables marketers to optimize against both brand and direct response objectives. It is also promoting its self-serve platform and is seeing stronger adoption of the platform and private marketplaces (PMP) among its customers. According to eMarketer, the US PMP spend is expected to grow to nearly 50% of all programmatic PMP spending by 2018. To address this market, Rocket Fuel is using its Moment Scoring technology to score the company's traditional PMP buys. The technology is helping deliver improvement in ROI against both brand and direct response objectives.
Rocket Fuel also is implementing several leadership changes that include the addition of a new CFO Stephen Snyder and new SVP of engineering Rick Pittenger. Prior to joining Rocket Fuel, Stephen was the CFO for Trilliant, a venture backed late-stage company, and has held leadership positions in Adobe (NASDAQ:ADBE).
Rocket Fuel's Downfall
Rocket Fuel was venture-funded until September 2013. It had raised $76.6 million in funding from investors including Mohr Davidow Ventures, Labrador Ventures, Wilson Sonsini Goodrich & Rosati, DLA Piper, MF Capital, Nokia Growth Partners, Northgate Capital, Summit Partners and Comerica Bank. It went public on Nasdaq in September 2013 and raised $116 million. At the time of the IPO, its stock climbed to $61.23. Since then, its stock has slipped considerably. Its stock is currently trading at $1.95 with a market capitalization of $88.89 million.
According to a recent PwC report, domestic digital advertising revenue grew 20% to $59.6 billion in 2015. This was driven by a 66% growth in mobile advertising, which brought in revenue of $20.7 billion. Social media advertising is another fast-growing segment which accounted for $10.9 billion revenues and grew 55% over the year. It is no surprise then that big players like Adobe are attracted to the segment. Early this month, Adobe announced the acquisition of Rocket Fuel's Competitor TubeMogul (NASDAQ:TUBE) for an estimated $540 million.
Like Rocket Fuel, TubeMogul had gone public in 2014 with a market cap of $300 million, but its innovative video advertising solutions have helped it deliver a much stronger stock performance. For the last reported quarter, TubeMogul had reported revenues of $56.1 million and an adjusted EBITDA loss of $0.3 million.
So while the industry is still growing at a healthy pace, its failure to innovate in the face of increased competition from big and small players has turned it into a unicorpse.
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