Commentary

Is The Rocket Ship Leaking Fuel?

BMO Capital Markets has dropped coverage of Rocket Fuel, one of ad tech’s most high-profile programmatic companies.  In a research note, Dan Salmon cited resource constraints at BMO, and noted that Rocket Fuel has been tanking. BMO had set the company's target price at $4. As of July 15, the programmatic company was trading at $2.34 a share.

BMO cited clients losses among the risks for Rocket Fuel that  could lead to  “consistent revenue declines.” In his note, Salmon said, “If a turnaround can be established, the company still faces potential long-term take-rate pressure due to competition and the broader push for transparency in the ad tech ecosystem.”

On a more positive note, BMO said that a case for a turnaround can be made: “With the recent addition of Chief Financial Officer Rex Jackson, the company has its executive team in place and now must execute on its Rocket Fuel 1200 plan, which consists of growing share in its top customers and turning off unprofitable accounts. We believe that there is a case for a turnaround to be made, but we remain concerned over the company’s dependence on display advertising and the deceleration of mobile/social/video as a percentage of revenue. We also note the lack of visibility into take rate margins, client count, and ARPU given the company’s new reporting metrics. The company also faces the same take-rate pressures as the rest of the ad tech ecosystem.”

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Rocket Fuel wants and needs more agency clients, but this remains a challenge. It has ramped up its sales enablement resources recently to support new business.

Separately, last week shares of Rocket Fuel were given a consensus recommendation of “Hold” by the nine ratings firms that currently cover the company. The average one-year target price among brokers that have issued ratings on the stock in the last year is $3.71.

Shares of Rocket Fuel have seen a 52-week low of $2.09 and a 52-week high of $8.28. The firm’s market cap is $101.75 million.

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