Donald Cannot Make Rocket Fuel Great Again

Summary

FUEL’s stock price has been declining in a steady fashion as the company has failed to deliver any growth since the start of 2015

News about Donald Trump’s campaign using FUEL pushed the price to $2.7 per share, representing a 28.5% overnight increase

Citigroup analyst mentioned that they have already factored in any election spending during their SELL rating

Donald Trump’s campaign has practically run out of money and cannot bring in any meaningful revenue to change the fortune of FUEL

The recent surge in stock price of FUEL offers secondary investors a great opportunity to reduce their exposure

Company Overview

Founded in 2008, Rocket Fuel Inc (NASDAQ:FUEL) is a marketing company that primarily offers a new approach to promoting products and services via its innovative programmatic marketing platform. Rocket Fuel Inc’s unique platform utilizes big data and artificial intelligence algorithms to improve the marketing ROI.

Rocket Fuel Inc’s proprietary Moment Scoring™ offers a fully data driven marketing approach that aids the programmatic marketing decisions across channels, devices, and objectives for agencies and marketers.

Rocket Fuel Inc’s platform offers their clients various marketing services, including Data Management Platform (DMP) and Demand Side Platform (DSP). Customers can use these innovative tools themselves, via their own marketing agencies. Rocket Fuel Inc also offers a managed service themselves.

As of July 3, 2016, Rocket Fuel Inc had a market capitalization of $103.05 million and employed over 900 people.

Analysis of Recent Price Surge After News Came About Donald Trump’s Campaign

The gradually declining stock price of Rocket Fuel Inc last week jumped around 28.5%, from $2.1 per share on June 27 to $2.7 per share on June 28, after CNBC reported that the Republican Party’s presumptive nominee for president, Donald Trump, is using Rocket Fuel Inc to track user behavior and sending targeted messages to prospective supporters by utilizing the programmatic marketing platform.

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Figure 1: Year-to-Date, Rocket Fuel Inc’s Stock is Still Down by 32.7%

Prior to last week’s hysteria, Rocket Fuel Inc’s stock price has been steadily declining. Soon after the stock price surge on June 28, the market seemed to have realized that how big of a mistake it was, and since then the price has gone down below $2.3 per share once again, and currently trading at $2.35 per share.

In fact, even after last week’s uptick, Rocket Fuel Inc’s stock price is still down by 32.7% since the beginning of the year ((YTD)).

It Is Not a Surprise!

The news about Donald Trump being a client of Rocket Fuel Inc hardly came as a surprise to anyone who has been following the ad-tech industry over the last few quarters.

Citigroup’s analyst, Mark Kelley, mentioned that he has already factored in any revenue coming from the 2016 presidential election campaign while he rated the stock and gave it a SELL rating.

“FUEL expanded its Washington D.C.-based team to approximately 15-20 people in anticipation of the election cycle,” said Mr. Kelley. 

He went on to mention that Rocket Fuel Inc has recently mentioned in a press release that the total US digital ad spending during the 2016 election cycle would be around $1 billion. However, Mr. Kelley noted that Citigroup has estimated that the “federal opportunity for total internet media ad spend in 2016 is $450-460 million.”

He concluded that “while we [Citigroup] acknowledge this is a clear positive for FUEL and is perhaps some evidence that spending will pick up a bit for the greater ad tech group, political spend is largely baked into our numbers, and we continue to be sellers of FUEL based on our longer-term view of the take rate pressure the company will see as it makes the transition to a self-service offering.”

Conclusion

We have already seen presidential candidates like Hillary Clinton and Bernie Sanders utilizing ad-tech companies during the Democratic primary cycle and it was very logical that Donald Trump would soon join the bandwagon.

However, Mr. Mark Kelley has rightly pointed out that to date, the political spend “has not met expectations” likely due to Donald Trump’s lower spending in the comparison to other candidates.

Investors should know that Donald Trump’s campaign is facing serious financial crisis. In the same CNBC piece, they mentioned that “according to reports last week filed with the Federal Election Commission, Trump had $1.3 million in the bank at the end of May, compared with $42 million in the Clinton coffers.”

Even if Donald Trump’s campaign decides to keep spending on Rocket Fuel Inc till the end of the general election in November 8, 2016, it would hardly create any sustainable impact on the top line of the company.

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Figure 2: Rocket Fuel Inc Has Failed to Deliver Any Growth Since the start of 2015

Rocket Fuel Inc has failed to deliver any meaningful top line growth since the start of 2015 and losing money quarter after quarter. There are plenty of great analysis about the underlying weakness of the company and we believe that just because Rocket Fuel Inc acquired a broke client, the Donald Trump campaign, it does not mean their future would be any different.

On the contrary, the recent surge in the stock price of Rocket Fuel Inc offers secondary investors a great opportunity to reduce their exposure.