Why Rocket Fuel Inc. Shares Sank

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Rocket Fuel (NASDAQ: FUEL  ) plunged 20% Friday after the artificial intelligence advertising solutions company reported third-quarter results.

So what: Quarterly revenue increased 132%, to $62.5 million, leading to an adjusted net loss of $1.8 million, or $0.16 per share. Analysts were looking for an adjusted loss of just $0.13 per share on sales of $53.59 million.

That said, Rocket Fuel also projected fourth-quarter revenue in the range of $74 million to $77 million, also well above analysts' estimates, which called for Q4 sales of $66.19 million. 

Now what: Rocket Fuel's sales are growing nicely; but all the revenue in the world don't mean much if it doesn't eventually translate to the bottom line. What's more, keep in mind that, going into the report, shares of Rocket Fuel had already jumped 64% from its late-September IPO at $29 per share. As a result, it's hard to blame investors for taking some of their quick profits off the table.

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Read/Post Comments (5) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On November 08, 2013, at 8:20 PM, bootcamp wrote:

    The IPO price was at $29 not $20. This looks like a canned article auto generated using financial reports.

    In any case, I dont agree with your assessment that the today's sell off was because of no improvement on the bottomline. Most of the times, no one knows the reason for a sell off. I think some IPO investors or VCs were unloading their holdings. With just 4M float and even if I add today's 2M to that, it is just 6M shares. Low floats can cause wide swings in the stock.

    FUEL is just 5 year old company and went public last month. Focusing on topline is the right strategy for company trying to grab market share. I am 100% supportive of the management focusing on topline just like amazon, salesforce.com likes.

    This company is growing nicely at 130% yoy and the stock is very cheap. The stock would go past $60 soon.

  • Report this Comment On November 08, 2013, at 9:49 PM, TMFSymington wrote:

    @bootcamp, Good catch on the IPO price! That's my typo and it should be corrected shortly.

    But that still means FUEL had risen 63% from its IPO price, so its unsurprising already-skittish IPO investors would take some profits after the company missed estimates on the bottom line.

    Could it be a buying opportunity if FUEL is able to maintain its torrid pace of top-line growth over the long-term? Sure, but Rocket Fuel will need to further build that rapport with investors before we trust it can become the next Amazon or Salesforce. Until then, I'll be watching from the sidelines.

  • Report this Comment On November 09, 2013, at 6:37 PM, barb758 wrote:

    Fuel and Twitter are nice 'short' play..no profit in near future.

  • Report this Comment On November 10, 2013, at 2:03 PM, RHinCT wrote:

    "What's more, keep in mind that, going into the report, shares of Rocket Fuel had already jumped 64% from its late-September IPO at $29 per share."

    Look at the graph. The day it started trading the LOW was 54.51. So the DAY IT OPENED there was a jump. In the next month or so it managed to reach as high as 68.56. But it closed the day before this drop - "going into the report" as you described it - at 47.35, DOWN 13% from the LOW of the first day. Look at the graph of the stock price since the IPO. Look at the all the changes that brought it to the "going into the report" moment and price. You call that a JUMP??? The only jump visible in the graph was Friday when it jumped off the edge.

    Fill-in-the-blanks-and-hit-the-deadline reporting.

  • Report this Comment On November 12, 2013, at 9:27 AM, Rmz wrote:

    Why is a company that produces what is essentially regarded as malware , listed.

    Thats crazy. Run any decent antivirus or anti malware app and it will show rocket fuel as installing itself right into the registry of an infected computer.

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