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Billion Dollar Unicorns: Rocket Fuel Crashes on Results

Posted on Monday, Mar 23rd 2015

According to a recent eMarketer report, the global advertising market is estimated to grow 6% over the year to $592.43 billion this year. The US is the biggest advertising market and is expected to account for 31.9% of the global market share. Mobile and digital advertising are expected to be the key drivers of worldwide growth in the future. Digital advertising is expected to grow to 33.5% of total advertising market by the year 2017 to $224 billion. Mobile accounting will account for more than half of the digital advertising market in that year. Within digital advertising, former Billion Dollar Unicorn club member Rocket Fuel has seen their valuation soar and then come crashing down in the face of weak financial performance.

Rocket Fuel’s Offerings

Redwood City-based Rocket Fuel (NASDAQ: FUEL) was founded in 2008 by Yahoo! alumni Abhinav Gupta, George John, and Richard Frankel. The three got together with a vision to create a platform that would become both a disruptive and an indispensable marketing tool for brands. They wanted to build an organization that would simplify online marketing capabilities for advertisers.

To deliver on their vision, Rocket Fuel’s team developed an Artificial Intelligence and Big Data-driven predictive modeling and automated decision-making platform. The platform is capable of addressing the market’s needs of processing big volumes of data at real-time speeds while focusing on the growing digital advertising market. Their ad platform purchases ad spots on multiple ad exchanges and creates a portfolio of impressions that are best suited to meet advertisers’ objectives of high conversions and low cost of customer acquisition. Their platform is thus able to offer optimal advertising solutions for display, video, mobile, and social online advertising. For instance, for display advertising, Rocket Fuel is able to run campaigns that are able to track metrics in real-time and for video advertising they are able to post ads to targeted audience to make them more effective.

Rocket Fuel’s Financials

Rocket Fuel’s products have helped them deliver strong revenue growth. Revenues increased from $16.5 million in 2010 to $106.6 million in 2012. Net loss for the same period increased from $3.2 million to $10.3 million.

More recently, for the quarter ended December 2014, revenues increased 63% to $139.5 million driven by a 108% growth in digital advertising from mobile. Rocket Fuel is yet to turn profitable. Net loss for the quarter increased to $0.49 per share, compared with a net loss of $0.07 per share a year ago. The market was looking for a loss of $0.25 per share on revenues of $145.5 million.

For the year ended December 2014, revenues increased 70% to $240.6 million with digital advertising through mobile, social, and video channels reporting a growth of 201% over the year. Net loss for the year increased from $1.38 per share a year ago to $1.74 per share.

Rocket Fuel was venture funded till September 2013. They 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. They went public on the NASDAQ in September 2013 and raised $116 million by selling 4 million shares for $29.00 each. At the time of the IPO, their stock soared to $61.23 taking their market capitalization to $1.99 billion.

But since then, the stock has slipped. Continued losses due to rising costs and increasing competition by bigger players have hurt their standing. Google and Facebook are both actively participating in the market of digital advertising platforms based on Big Data analytics. Rocket Fuel will find it hard to compete with their might.

Their stock is currently trading at $9.83 with a market capitalization of $413.8 million. It has fallen from a high of $48.35 that it had touched in March 2014.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

This segment is a part in the series : Billion Dollar Unicorns


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