Through the sale of 4 million shares, Rocket Fuel raised $116
million, but Friday's immediate stock jump suggests the company
left a lot of money on the table -- perhaps as much as $123
million. But its success could bode well for other ad-tech firms
planning to go public.
Mr. John said Rocket Fuel would use proceeds from the IPO to
invest in its core technology. Richard Frankel, who also co-founded
the company and serves as president, said it plans to hire more
salespeople and open more offices.
Rocket Fuel's revenue hit $106.6 million in 2012, up 139% from
2011. Through the first six months of this year, the company raked
in $92.6 million, an increase of 134% from the same period a year
earlier. However -- as was the case with Tremor Video, YuMe and online ad
software company Marin Software, which went public in
March -- Rocket Fuel was not profitable at the time of its IPO. The
company has actually gone deeper into the red this year, recording
an $11.9 million loss through the first six months of 2013,
compared to a loss of $10.3 million for all of 2012.
Public market investors are usually wary of putting money into
unprofitable companies, which is part of the reason Tremor Video
and YuMe have had a rough time as public companies until recently.
But Rocket Fuel likely benefitted from how different it is from
those companies. Both Tremor Video and YuMe are video ad networks
with sizeable sales teams that create overhead pressure. Rocket
Fuel pitches itself as an artificial intelligence company. Instead
of sales teams, it has computers that automatically bid on ad
slots, meaning Rocket Fuel's growth hinges on its ability to
fine-tune its technology and not on growing its staff.
However, Rocket Fuel may face significant risks. Marketers are
increasingly applying their own data to programmatic buys, seeking
an upper hand against competition buying on the same platforms.
That means Rocket Fuel's technology may not be as important to
buyers in a few years.
"We see risks around much of what the company does," said
Pivotal Research analyst Brian Wieser in a research note in advance
of Friday's IPO. "Our guess is that any performance-based
advantages that a Rocket Fuel might be able to highlight will be
relatively short-lived, as best practices are increasingly
commoditized as the sector evolves."
Further, Rocket Fuel may be in trouble if Google goes forward with a
plan to replace third-party cookies that it's said to be
considering. Google wields great power in this area, as its Chrome
browser commands over 40% of the browser market. Rocket Fuel, like
many ad tech companies, depends on third party cookies for its
targeting and campaign enhancement features to work properly.