This IPO Took Off Like a Rocket

This IPO Took Off Like a Rocket

Big data analytics ad shop Rocket Fuel rocketed by over 90% after its debut today on the Nasdaq exchange. It priced its IPO at the top end of its range and sold 4 million shares at $29 each, raising $116 million in the process yesterday, and hit the public markets in trading today under the ticker symbol FUEL.

Rocket Fuel powers its ad buys by optimizing the real-time use of artificial intelligence to time them. Combining predictive analytics and a complex formula involving a multitude of factors -- everything from social, behavioral, contextual, geographical, and search -- it precisely calculates just when and how much to bid to place a certain ad in front of a specific person. When all the stars align, Bam! It puts the ad out for you to see.

Well, it sounds cool in theory, and companies are starting to buy into the concept. Revenue for the first six months of 2013 hit $92.6 million, up 233% from the year-ago period. Trailing revenue is $160 million, and the number of customers, now at 784 at the end of June, has more than doubled.

Consumer products giant Procter & Gamble just said digital market is "dead," that because it's so common it should just be referred to as brand building. As the largest advertiser in the world spending more than a third of its $9.7 billion ad budget on digital media, it might know something of which it speaks.

In comments made at a digital marketing conference in Germany the other day, P&G's global brand building officer could have been directing his remarks at Rocket Fuel. He noted technological advances had been made in reaching consumers wherever they are, particularly digitally, but when you come right down to it, it's still the message that's important.

Although the consumer products company sees the technology as just another tool, Rocket Fuel would likely counter that without the tool you won't reach the consumer no matter how good or clever the marketing message.

Big data has become big business. The market analysts at IDC say the global volume of digital information created, replicated, and consumed is expected to grow from 2.8 zettabytes in 2012 to 40 zettabytes in 2020, or a doubling of data every two years. A number of companies, both established names like IBM and upstarts like Splunk, have realized the potential of harnessing the powering of all the data companies are generating and analyzing it to make sense of it all.

Rocket Fuel is seeking to apply it to programmatic ad buying as a means of streamlining the process through analyzing thousands of data points and reacting accordingly. Because buyers are typically presented with a dizzying array of options to sort through before placing their ad, Rocket Fuel automates the process by studying factors on who's likely to click on what, when, and where and deciding where the ad should go. It's able to simultaneously run over 1,000 campaigns for advertisers with highly diverse goals with very little manual configuration.

For all the whiz bang technology deployed, the ad shop still needs to compete against some of the biggest names in online technology, like Google and Facebook, who can deploy far greater resources to tackle a project than Rocket Fuel can. That could be why other digital ad IPOs such as YuMe and Tremor Video were poorly received this year. Margins in the space can be razor-thin, and differentiating between all the competing technology can be as confusing as the factors surrounding an ad buy. As the old sales adage notes, a confused customer always says "no."

YuMe also says its technology can "find and target large, brand-receptive audiences across a wide range of Internet-connected devices and digital media properties", while Tremor notes its VideoHub technology "analyzes in-stream video content, detects viewer and system attributes, and leverages our large repository of stored data to optimize video ad campaigns for brand-centric metrics.."

So it ultimately comes down to results, and according to a study the digital advertiser commissioned earlier this year, Forrester Research says ad campaigns fueled by Rocket Fuel resulted in a 229% return on investment for agencies and 192% ROI for advertisers because its sophisticated algorithms allowed it to generate higher conversions.

It also has an impressive book of some big clients, from tech giants Microsoft and Cisco to automakers like BMW, Mercedes, and Nissan.

Because Twitter's IPO announcement has elicited new excitement for tech offerings, Rocket Fuel has the creative juices flowing. I do find IPO investing to be highly risky, as there seem to be more flameouts than rockets, but Rocket Fuel looks like one that just might be able to hit the right trajectory.

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Fool contributor Rich Duprey owns shares of Cisco Systems. The Motley Fool recommends BMW, Cisco Systems, Facebook, Google, and Procter & Gamble. The Motley Fool owns shares of Facebook, Google, International Business Machines, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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