Internet ad networks are hot. Data science is hot. Therefore, Rocket Fuel, the company that combines ad networks and data science, can go public. And on Friday it filed to go public with one of the the coolest ticker symbol’s possible: FUEL.
The pricing range and timing aren’t clear yet, but Rocket Fuel says it wants to raise up to $100 million. The lead underwriters are Credit Suisse and Citigroup.
In the S-1 filing with the Securities and Exchange Commission (SEC) released on Friday, Rocket Fuel pitches itself as an artificial intelligence company focused on predictive modeling and a “automated decision-making platform.” Cool, I need one of those. Rocket Fuel’s primary money-making tool with its automated intelligence platform is to track Internet ad buying patterns for clients and optimize marketing campaigns based on available data.
“We provide a differentiated solution that is simple, powerful, scalable and extensible across geographies, industry verticals and the display, mobile, social and video digital advertising channels,” says Rocket Fuel in the S-1. “According to MAGNA GLOBAL, the display, mobile, social and video channels for digital advertising are expected to grow from $42 billion in 2012 to $73 billion in 2016 globally.”
This is a cocky S-1. Clearly, the company has some mojo and is proud of it. After I started reading the document, I was wondering if there was a “Risk Factors” section at all. The way this company describes itself, it will soon solve world hunger and global warming using one simple data algorithm.
For example, again from the S-1:
Our team of award-winning computer scientists developed and continues to enhance our disruptive technology. Our scientists have backgrounds in AI, Big Data, machine learning and high-availability and distributed systems from institutions including Massachusetts Institute of Technology, Stanford University, Indian Institute of Technology and Carnegie Mellon University. Benefiting from our unique combination of technology and industry expertise, we have rapidly grown our business, building a diversified customer base during 2012 comprising over 65 of the Advertising Age 100 Leading National Advertisers and over 40 of the Fortune 100 companies.
Holy crap. How can you compete with that? The business model is relatively simple, too. Provide a valuable service (imore intelligent ad targeting) and tack on a premium on to the ad buy for all of the taregeting intelligence coupled with Return on Investment (ROI) data.
Revenue has been growing nicely. The company booked $16.5 million, $44.7 million, and $106.6 million, respectively, in 2010, 2011, and 2012. The Rocket Fuel IPO promotionalists don’t miss the opportunity to point out that this is a compound annual growth rate (CAGR) of 154%.
The company is still losing money, however. In the years 2010, 2011, 2012, losses went $3.2 million, $4.3 million, $10.3 million. It lost $11.9 million in the first six months of this year. Clearly the company is still in investment and growth mode.
The S-1 is impressive, I tell you that. It certainly tells you how special Rocket Fuel is. It encapsulates all of the Internet advertising trends, pointing out that Internet advertising is growing like gangbusters. And it all comes back to Rocket Fuel’s solutions: “Driven by our disruptive AI [artificial intelligence] technology, our real-time optimization engine delivers digital advertising campaigns that are effective and efficient, and are easy for us to set up and manage.”
But yes, Rocket Fuel does have a “Risk Factors” section. It might have trouble attracting more advertisers, it says. It may have trouble managing growth. Operating results might fluctuate. It might not make the right investments.
But I’ll tell you the biggest risk factor:
Potential ‘Do Not Track’ standards or government regulation could negatively impact our business by limiting our access to the anonymous user data that informs the advertising campaigns we run, and as a result may degrade our performance for our customers.
That’s it. That’s the big one. Privacy advocates have been getting more visibility in providing for more controls media ad-tracking and Internet cookies. Will it ever happen on a large scale? Doubtful, as Internet users appear to like the benefits of ad-tracking technology more than the pitfalls. But this is clearly the biggest risk to Rocket Fuel’s business model.
Deep into the Rocket Fuel S-1, there is some interesting information about a loan agreement that Rocket Fuel has with Comerica. According to a loan and security agreement with Comerica, Rocket Fuel had a line of credit for $25 million of which it had drawn down $6.9 million June 30, 2013. The Comerica loan is secured by all of Rocket Fuel’s assets, including intellectual property, which is a bit scary. Of course, if they get to IPO, they can pay offf the loan. But still, this following point was very interesting to me:
As of December 31, 2012, we were in breach of various financial and non-financial covenants under the Comerica Agreement. However, we subsequently obtained waivers for each of the covenant violations.
It looks like Comerica is looking to the IPO.
Big investors in Rocket Fuel that will get rich from the IPO include venture-catpial firms MDV (Mohr Davidow Ventures) IX, Nokia Growth Partners, Labrador Ventures, and Northgate Capital. MDV IX is the largest holder with 40% of the shares prior to the offering.
George John, the CEO of Rocket Fuel, owns 12% prior to the offering, and Richard Frankel, President, owns 10%. Abhinav Gupta, VP of Engineering, clocks in at 7.6%.