Is what we have here a failure to communicate? Or is it an indication that ad tech companies don’t translate so well to Wall Street?
Rocket Fuel announced this week a loss of $10.7 million or 24 cents a share in the third quarter, and earnings “slightly below our guidance of $63 to $66 million (net revenue) primarily due to unexpected weakness in our political and EMEA businesses,” according to CEO Randy Wootton. The company is said to be “disappointed” with its results.
Wall Street didn’t react much; the stock’s listing of $2.89 on Wednesday morning was little changed from when we mentioned Rocket Fuel stock’s somewhat sluggish performance last week. But a year ago, the stock was over $4.
Rocket Fuel also said that its CFO, Rex S. Jackson, was stepping down, to be replaced by Stephen Snyder. Snyder is to be paid an annual base salary of $325,000, with a bonus on tap of 60% of his base salary. When public companies replace their CFO when reporting disappointing earnings, it usually means that there were questions about the numbers and the way they were handled.
Does Wall Street understand the sometimes complicated story of ad tech companies like Rocket Fuel? After all, on paper at least, it looks like a successful ad tech story, with Rocket Fuel serving 96 of the Ad Age 100 list. But then there are those earnings and the reported loss
I asked Rocket Fuel CTO Mark Torrance about this in an email interview. “My impression is [Wall Street] isn’t really getting it, hence the stock price,” Torrance stated. Despite the somewhat “disappointing” earnings, Torrance says that Rocket Fuel is a leader in machine learning or artificial learning.
“Most DSP companies don't have much automation, machine learning or artificial intelligence embedded in their platforms,” Torrance indicated. “They provide tools for media planners to manually choose what inventory to buy, and to perform manual optimizations informed by insights and data. Among our competitors, Rocket Fuel has the most sophisticated automation to deliver the best performance automatically, with low intervention from people.
Rocket Fuel uses Google-style evaluation factors they call Moment Scoring, “factoring in not only the past behavioral attributes of a person to determine that they are the best prospect, but also considering contextual indicators like the site they are on right now, the type of device they are using, the time of day, and the weather. By using all of the available data, and keeping it up to date in real time, we can be smarter about the value of every moment to impact each consumer on behalf of the marketers that work with us.”
But Torrance identified an interesting problem, endemic to ad tech companies.
“Customers who have experienced our technology have tremendous success with it,” he says. “The fact that we sell it through ad agencies who have an incentive to continue keeping vendors in competition with each other does provide a challenge. We are addressing that by adding tools into our product that will allow our agency customers to add more value through their manual work and knowledge.”
I find this really intriguing. If your own customers are not incented to promote your services and technology to Wall Street, how are analysts ever going to appreciate it?
In its last 10-Q report filed last August, Rocket Fuel, incorporated in 2008, admitted “our rate of revenue growth has been declining since the third quarter of 2013. We may not be able to slow or reverse this decline in revenue growth rate, and we may not be able to maintain our current revenue levels.”
If the stock price is going to show some rocket-propelled growth, it will need some variations on its current fuel intake, apparently.