Rocket Fuel Inc (NASDAQ:FUEL) On A Bull Run

Rocket Fuel Inc. (NASDAQ: FUEL), the predictive marketing company created in 2008 by alumni of Yahoo!, is delivering extraordinary returns in 2017. The stock has been widely covered in the financial forums. The company's technology is revolutionary, and it is sending press releases that the market has recently appreciated. But, this is not all; the earnings results delivered in 1Q, 2Q, 3Q and 4Q of 2016 were better than expected, which made the company's shares increase. In this article, we will provide an assessment of the technology provided and provide some insight about its financial situation. Have a look at the recent share price movement:SourceBusiness logicFUEL applies machine learning techniques to deliver digital marketing services. The company offers a predictive marketing platform that helps the company's clients connect with potential customers when it is most likely that they will be engaged. In this way, the marketing campaigns produced by FUEL are optimized and aligned to achieve the advertiser’s objectives.The technology developed is able to buy real time information about "tens of billions of daily ad purchases across all digital advertising exchanges", and adapt the campaign to "optimize the goals of our advertisers, such as increased sales, heightened brand awareness, and decreased cost per customer acquisition". The company provides two platforms to deliver these services; Demand Side Platform, or "DSP", and Data Management Platform, or "DMP". The DSP is responsible for doing the whole process of acquisition of information and adapting the campaign. Conversely, clients contracting the DMP platform will be able to obtain the purchasing information alone and adapt the campaign independently.There is a lot of information about how the FUEL's algorithms work in its last 10-k. We encourage investors to take a look at it. But, if you don't have the time, this is the most astonishing information about the technology that we saw. The company's algorithm makes decisions in milliseconds:

"Each ad purchasing decision on real time advertising exchanges must be made in milliseconds, which means any analysis and decision-making must happen in an even shorter period of time. Our Predictive Marketing Platform uses a technology we call Moment Scoring™, which is designed to consider in a fraction of a second whether a particular advertising opportunity, or impression, is the right time to influence a consumer, based on our platform’s real-time scoring - positive or negative - of the likelihood of consumer engagement with the advertisement based on relevant attributes. If the score is positive, we determine the value of that impression to the particular advertising campaign and how much we are willing to bid for that opportunity." Source

Business history and strategyThe company is growing rapidly. It was incorporated in Delaware in 2008, and it is bringing the self-service DSP since July 2014. Additionally, in September 2014, the company acquired [x+1], a privately held programmatic marketing technology company. According to the annual report, this acquisition brought to the company the DMP platform. But, this is not all. The company could obtain the clients of this company, which we believe is the most interesting part of the target. They acquisition establishes clearly that the company knows very well what is doing and intends to grow inorganically as well as organically at the highest possible pace. Just having a look at the amount of employees, we can obtain the kind of growth that the company is experiencing:

"As of December 31, 2016, we had 851 full-time employees, consisting of 665 employees in the United States and 186 employees internationally." Source

To sum up, the company is growing in a highly competitive and fragmented industry, so it knows very well that it needs to grow fast.Recent DevelopmentsThe most recent development communicated by FUEL was the results obtained in a study in collaboration with Integral Ad Science (IAS). In the study, 47 billion video impressions were analyzed to check whether they were actually in-stream or were actually misrepresented as in-banner, which is a serious issue for brands. The CEO of Rocket Fuel, Randy Wootton, said the following about the study:

“The industry needs a new video solution for brands. We are dealing with a highly non-transparent market where many other video platforms are unable to accurately distinguish an in-banner from an in-stream impression.” Source

Thanks to the study, the company stated that it is now possible for marketing agencies to protect themselves from misrepresented in-banner. FUEl will be able to offer the following services to its clients:

-Independent 3rd party verification to hold partners accountable.-Predictive targeting to limit mislabeled in-banner.-AI-based fraud detection, because fraud evolves and machine learning is one of the most efficient ways to identify suspicious impressions before bidding on them. Source

Financial situationEarnings per shareIn our opinion, a large part of 2016's uptrend occurred because FUEL surprised investors in every quarter last year. The following is the list of the positive surprises:

1. First quarter: 43.80% more EPS than expected.
2. Second quarter: 46.70% surprise.
3. Third quarter: 34.8% surprise.
4. Fourth quarter: 48.10% surprise.

According to our experience, good results are normally followed by more good results. Thus, the next quarter could be as beneficial as the other ones. The next quarter 1Q 2017 results are expected soon. So, we encourage investors to stay alert or subscribe to our email service.Balance SheetThe balance sheet looks stable. Start-ups usually show a large amount of liabilities because investors prefer to provide debt instead of equity. Well, this is not the case of FUEL, which shows an assets/liabilities ratio of 1.4 as of December 31, 2016. Additionally, the company is financing using the account payables so that it does not pay interest. These are the assets:

Period Ending12/31/201612/31/201512/31/2014Current AssetsCash And Cash Equivalents84,02478,560107,056Short Term Investments---Net Receivables125,755124,998135,400Inventory---Other Current Assets5,6475,88416,229Total Current Assets215,426209,442258,685Long Term Investments---Property Plant and Equipment49,56182,78189,441Goodwill--115,412Intangible Assets34,87450,91969,299Accumulated Amortization---Other Assets2,2663,1944,061Deferred Long Term Asset Charges5747182,367Total Assets302,701347,054539,265

Source

Have a look at the liabilities and note that the company holds very little long term debt:

Accounts Payable116,487112,026109,343Short/Current Long Term Debt79,51554,32251,187Other Current Liabilities2,8562,116593Total Current Liabilities198,858168,464161,123Long Term Debt6,72129,47235,676Other Liabilities8501,176814Deferred Long Term Liability Charges9,12114,04228,886Minority Interest---Negative Goodwill---Total Liabilities215,550213,154226,499

Source

Institutional holdersThere is another very interesting fact to point out here. The company shows a large amount of big institutional funds. Have a look:

HolderSharesDate Reported% OutValueRenaissance Technologies, LLC2,978,000Dec 30, 20166.53%5,092,380Prudential PLC2,558,498Dec 30, 20165.61%4,375,031Vanguard Group, Inc. (The)1,018,456Dec 30, 20162.23%1,741,559Acadian Asset Management820,962Mar 30, 20171.80%4,400,356Roumell Asset Management LLC783,100Dec 30, 20161.72%1,339,101Prescott Group Capital Management, L.L.C.749,851Dec 30, 20161.65%1,282,245

Source

As our subscribers know, novice investors should always follow what the big institutions are doing. In addition, business executives also own a decent amount of shares. Have a look:

NameSharesDate ReportedWOOTTON EMMETT RANDOLPH III279,026Mar 24, 2017KOKICH CLARK M105,505Jun 7, 2015THAPAR MANU59,844Mar 24, 2016GERDES HENRIK36,385Oct 26, 2016TRIGG DOMINIC34,328Mar 24, 2016SONG RICHARD32,500Aug 16, 2016Source

ConclusionRocket Fuel delivers a revolutionary technology to optimize the engagement of new customers that is making the company grow at a fast pace. Additionally, earnings releases continue to surprise the market quarter after quarter, thus pushing up the share price. Smart money managers also got to know the opportunity and bought shares in 2016. Furthermore, the company is also owned by insiders, who have faith in the company's future perspectives. To sum up, there's a lot to like about FUEL and its bull run. We will be updating our subscribers as soon as we know more. For the latest updates on FUEL, sign up below!Disclosure: We have no position in FUEL and have not been compensated for this article.