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Rocket Fuel -29% AH on weak guidance; Criteo, Rubicon Project also off

  • In addition to missing Q1 revenue estimates (while beating on EPS), Rocket Fuel (FUEL) expects Q2 revenue of $88M-$92M, well below a $101.8M consensus.
  • The online ad platform owner is reiterating full-year guidance for revenue of $420M-$435M (consensus is at $432.8M), but investors seem to have their doubts. It predicts new sales hires and product launches will give a boost to 2H growth.
  • Q1 adjusted EBITDA was -$3.7M, above guidance of -$7.5M to -$9M. Q2 adjusted EBITDA is expected to be in a range of -$4.5M to -$6M; the full-year outlook remains at $3M-$6M.
  • Peer Criteo (CRTO) is down 7% AH. The Rubicon Project (RUBI), which counts Rocket Fuel as a client, is down 4%. Criteo fell on Tuesday following its Q1 report.
  • Q1 results, PR

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Comments (15)
  • Galactic Potential Investments
    , contributor
    Comments (24) | Send Message
     
    FUEL guided 73-76m for Q1 and that's exactly what they did. Q2 also inline with expectations from the company. Consensus estimates aren't even doing the homework.
    8 May 2014, 04:50 PM Reply Like
  • Stone Fox Capital
    , contributor
    Comments (7015) | Send Message
     
    no doubt... it appears that any 'miss' is related to bad analyst estimates and not actual bad results.

     

    Customers accounts up 123% and gross margins jumped... hard to understand any reason for a selloff especially based on current value. Even in this market, a stock with this growth should trade at 10x revenue and not 2x.
    8 May 2014, 05:40 PM Reply Like
  • Equitable Research
    , contributor
    Comments (2078) | Send Message
     
    One thing I always look at is the difference in guidance and consensus. Obviously management is more concerned with guidance than consensus. One of the reasons I avoided FUEL despite the massive drop lately. Still found it rich even at the lower multiple and the big insider selling was a red flag. I was calling RUBI ridiculously overpriced at $23 on the IPO day and still think it can drop alot further. Just because something gets significantly cheaper does not make it cheap, its just less overpriced (I think I used that same quote talking about FUEL at $36 in response to an article here). Now at $20 its looking a little better.
    8 May 2014, 09:22 PM Reply Like
  • C.N
    , contributor
    Comments (223) | Send Message
     
    it is the market, majority of the stocks getting slashed after the earnings. When Nasdaq was at 3000, same results= 10% bump to the upside. But Nasdaq is at 4000+, so not much upside for the market for now.
    8 May 2014, 06:37 PM Reply Like
  • Stone Fox Capital
    , contributor
    Comments (7015) | Send Message
     
    true, but price should matter... big difference between selling at 10x revenue and 2x revenue. Not to mention FUEL has the fastest growth around.
    8 May 2014, 06:38 PM Reply Like
  • James Sands
    , contributor
    Comments (2431) | Send Message
     
    These are small-fry businesses with no earnings and poor margins. The market is not in a mood for high-growth at the moment, let alone small-fries which are no where close to companies like Google and Facebook.

     

    To me this is telling of the separation between Google and Facebook when it comes to digital advertising. How valuable are these "ad-tech" businesses really? There are thousands of them doing the same thing across the globe.

     

    Publishers like Facebook and Google with their ad networks and performance based products will eat these guys up one by one.
    8 May 2014, 07:16 PM Reply Like
  • aow
    , contributor
    Comments (142) | Send Message
     
    They're also in an extremely competitive environment fighting over an advertising pie that is growing at a slowing pace. They're also inherently risky. If Google ever abandons cookies, these companies' services will be all but useless.
    8 May 2014, 07:55 PM Reply Like
  • Galactic Potential Investments
    , contributor
    Comments (24) | Send Message
     
    This is a silly comparison to Facebook and Google. The market is much bigger than social and search, although FUEL delivers to those markets as well. The "worth" is apparent in the balance sheet while remembering to factor in growth. This "small fry" has 700 employees and a growing 1000 member client base. Margins are >50% and expanding. EBITDA positive in FY14. Sigh.
    8 May 2014, 10:38 PM Reply Like
  • James Sands
    , contributor
    Comments (2431) | Send Message
     
    We are talking advertising $$ here, where Facebook and Google are growing to 85% market share on mobile. That is the bottom line. There are plenty of copycats doing what FUEL does, Criteo, Millennial Media, Twitter, they all are doing "AI", predictable technology etc.

     

    Who is relevant is what's important. AT&T is relevant because they have customers and users, Google has more traffic than any website in the world, they have gmail, Google Maps, Facebook has over 1 billion users with data, Amazon has e-commerce transaction users with data, eBay has paypal and marketplaces users with data.

     

    What do "ad-tech" firms have that other tech giants don't, or cannot easily replicate with spending $7 million on R&D any given quarter......

     

    And I'll just change my settings to not allow cookies from now on and I've impacted FUEL's revenue.....this is not even a risk for Facebook, Google, AT&T, eBay, Amazon, etc.

     

    FUEL's earnings are worse than last time. The company will eventually need to earn real income at some point, without inflated SBC, all sustainable businesses do.
    9 May 2014, 12:50 AM Reply Like
  • Galactic Potential Investments
    , contributor
    Comments (24) | Send Message
     
    Again, you don't understand what they do, so you bash them. Rocket Fuel provides an optimization of targeted advertizing on both generic AND private marketplaces, delivering best in class ROI for the advertisers with proprietary software. >80% revenue growth speaks for the demand, and they're looking to license the software to more markets IF it makes sense for margins, so don't act like nobody needs the tech. Further, people who disable cookies are not a large segment of those who participate in online shopping or entertainment.

     

    Q1 is seasonally soft for all advertising firms as businesses stop advertising after the new year. They typically do 35% revs in 1H and 65% in 2H. Next Q will show a minimum of 15% increase in sequential revs, and each quarter will build on that until Q1 next year to meet guidance. Wait and see.
    9 May 2014, 09:11 AM Reply Like
  • James Sands
    , contributor
    Comments (2431) | Send Message
     
    The point is, as a product ad budget, you are going to spend more money on publisher sites with actual consumers/users, rather than spend money on an algorithm predicting user behavior with no direct connection to those user transactions. Every publisher has tech doing analysis of their users and has ad products for clients.

     

    Rocket Fuel uses third party analysis and at best, secondary analysis of first-party data.This is why Criteo seemed better from an investment standpoint, because they actually have an exclusive agreement with Yahoo Japan on the inventory side and they have access to direct advertiser client data.

     

    Regardless.....like I said why would Target use Rocket Fuel, when they can use Facebook, Google, Yahoo, Pinterest, LinkedIn, Bing, etc. getting access to direct users. Or how much are they going to spend with Rocket Fuel...compared to Facebook or Google. Does Rocket Fuel say we were able to find that through our ad campaign 40% of the internet users we targeted made a purchase and the average price was $55? Of course not.

     

    Look at market share changes from eMarketer or others. I've researched this industry a lot and things were much more optimistic 2-4 years ago. The opportunity is not clear and potentially getting smaller and smaller for certain players.

     

    This is why these companies are getting crushed ~ Criteo, Rocket Fuel, Millennial Media, Rubicon, Marin, Tremor Video, Yume......there are hundreds upon hundreds of other companies operating in this space, xAd, adknowledge, AppNexus, OpenX, LiveRail, Brightroll, Flurry, sprinklr, socialbakers, outbrain, dataxu, undertone, pubmatic, videology, Turn, InMobi, Pinterest....list goes on. Some of these companies claim to already be profitable and have more revenue already.

     

    Revenue growth isn't going to cut it for long-term sustainability. Look at Twitter, a much more successful company than Rocket Fuel and they are getting hammered too. There is no panic, people are thinking more about profits, of which there is no guarantee that Rocket Fuel will ever have them.

     

    Taking risk for growth is important, especially for any young investor. But owning a company that will be there in the future is number one. What is your price target for Rocket Fuel 10 years out? What do you expect their diluted EPS to be. What if they are able to grow long-term at an average annual rate of 20% and a P/E of 25 is to be expected at this point, what will their stock price look like based on share dilution and EPS?

     

    If we model an expectation of a 10% profit margin is this reasonable?

     

    Do some more detailed research on long-term perspectives on these questions. If you don't care about the long-term, then try to beat the herd trends and take advantage of the volatility.

     

    Good Luck!
    James
    9 May 2014, 11:10 AM Reply Like
  • noChinesestock
    , contributor
    Comments (66) | Send Message
     
    Hello
    Thanks for your article!
    everything got a price,gold has gold's price,bread has bread's price,even soil,I bought it once from walmart,the key :is this price high??a company with revenue growth 95% compare last year,stock's price worth less 2X revenue,I think it's too early to talk about bulb,everything will die,but when she is growing,thats too early concern it.
    if it's price is $150,I will say bulb,that's too high,cause I don't know how revenue will be going next year,$20??that's only I can say the market is panic.
    9 May 2014, 03:44 PM Reply Like
  • noChinesestock
    , contributor
    Comments (66) | Send Message
     
    I am not a long term,either short term,I am a mistakefinder,when I see there is a mistake in the market ,I will buy and hold .
    9 May 2014, 03:44 PM Reply Like
  • noChinesestock
    , contributor
    Comments (66) | Send Message
     
    everyone's panic, I am going to be greed.apparently this price is good to buy.
    8 May 2014, 08:51 PM Reply Like
  • jawdoc19@gmail.com
    , contributor
    Comments (37) | Send Message
     
    FUEL very undervalued even at $30. Short seller are comparing this to FEYE. I think its very risky to short this level.Great buying opportunity, I sold SCTY AH and bought FUEL.
    8 May 2014, 09:19 PM Reply Like
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