Rocket Fuel IPO

Written By Jason Stutman

Posted September 16, 2013

Two weeks ago, Energy and Capital subscribers were the first to read my advice on how to play the Twitter IPO before the paperwork was even filed.

Within just 10 days of that article being published, Twitter announced its IPO. Those of you who took my words to heart are already counting the extra money in your pockets…

The stock that I recommended gained 8% in premarket alone on news of Twitter’s initial public offering.

As far as I know, there was absolutely no one else pushing this play like I was. And while I generally try to be as modest as possible with my accomplishments, the truth is that when it comes to tech stocks, I know what I’m talking about.

You might remember when I told readers to buy TechPrecision (OTC: TPCS) at $0.35. It jumped 85% in less than a month. Or maybe you recall me saying that Facebook (NASDAQ: FB) would reach its initial IPO price back in June.

If you’ve been listening, congratulations on your profits. If not, that’s alright — because I have another tech IPO to share with you today.

I’ll tell you exactly why I am so bullish on this company in just a minute, but first, a little history…

Deep Blue

On May 11, 1997, the single most important chess match in the history of mankind was played out.

In a six-game match, Russian world champion Garry Kasparov was defeated by his American opponent. The final score of the match was two wins to one with three draws.

Kasparov was absolutely furious and demanded a rematch on the grounds that his adversary was cheating. But Kasparov’s opponent was void of typical human pride, and retired from chess from that day forth.

The match above was incredibly significant — not because it represented the conclusion of some international rivalry, but because it was the first time in history that a computer program was able to beat a world chess champion in match play.

You see, Kasparov’s opponent in that 1997 match was Deep Blue, a chess-playing computer developed by International Business Machines Corporation (IBM).

With the ingenuity of computer programming, IBM was finally able to settle a nearly three-decade-long debate over whether or not a computer could outsmart the best chess players in the world.

Up until that point, the implementation of artificial intelligence (AI) was primarily seen by the public as a matter of science fiction. While technology had its place in physical industries and even in storing and transferring information, the art of thinking was left up to the superior human mind… or so everyone thought.

Genuine Intelligence

It’s been over 16 years since Deep Blue defeated Kasparov, and yet the concept of computers outperforming humans remains one that many of us are hesitant to accept.

AI has crept on up on us so gradually that we rarely appreciate how much thinking we leave up to our mechanical helpers. Every time we use a search engine, map a route with our GPS, or fly in a plane, we rely on some form of AI. Even our online trading platforms like E*TRADE offer AI for customer support.

The fact is human decision making is flawed in many respects. Our thinking is often slow, and memory is far more unreliable than we might expect.

Computers can process more information and at a much faster rate. For machines, it’s only a matter of developing the correct algorithms for each situation.

The company I’m going to tell you about below has developed an AI system that not only offers better performance than human decision making in its field, but can also learn and adapt itself in real time.

This company is currently growing at an exponential rate, and has recently filed its Form S-1 with the SEC.

This is an incoming IPO you aren’t going to want to miss.

Cleared for Takeoff

Founded in 2008, Rocket Fuel is a technology company that has developed an AI and Big Data-driven platform for predictive modeling and automated decision making in digital advertising.

That’s a bit of a mouthful, so let’s break down what Rocket Fuel does in the most basic terms possible. To do that, we first we need to take a quick look at the way the digital advertising industry works…

In the past, advertisers would purchase space directly from Internet publishers. This was simple and effective at first, but as the volume of digital advertising increased, real-time advertising exchanges have emerged.

These advertising exchanges operate much like stock market exchanges. They work to reduce transactional friction associated with the purchase of digital inventory. The process of purchasing digital advertising inventory on these exchanges is known as real-time bidding (RTB).

In RTB, advertising impressions are sold as they emerge on the market. Every time a Web page is loaded, an impression becomes available, and advertisers bid on those impressions. As you can imagine, the bidding process must be incredibly fast if advertisers want to purchase individual impressions; Web pages load in milliseconds.

Traditionally, packages of these impressions have been purchased in advance, because humans simply cannot respond fast enough to bid in real time. As a result, the value of these impressions are lumped into a single sum.

For instance, if you were running an ad campaign for athletic shoes, you would purchase 10 million banner ads on under the running section, or 10 million Facebook ads for users who list “running” in their hobbies.

It’s a decent way to target your market, but is far from perfect.

Rocket Fuel offers a bidding strategy, dubbed programmatic buying, that absolutely trumps human-based bidding for digital advertising inventory. Programmatic buying offers advertisers in the range of five to six times the traditional return on investment.

The company’s data system evaluates millions of features including age, gender, education, purchasing history, income, history, behavior, time of day, and even weather to determine the value of a particular impression.

And because the entire process is automated by an AI program, Rocket Fuel can adapt throughout a campaign to work towards its customers’ goals. For instance, if one particular demographic is responding to an ad more than others during the campaign, Rocket Fuel will bid more aggressively on impressions that will reach that kind of consumer.

To Infinity…

Rocket Fuel is situated very well with this technology and is already making a killing in digital advertising, an industry that is set for massive levels of growth over the next several years.

Here are a few stats that bode well for this sector:

  • MAGNA GLOBAL expects display, mobile, social, and video advertising channels will grow from $42 billion in 2012 to $73 billion in 2016.
  • Adults in the U.S. spend 255 minutes per day online and on mobile devices — up 50% from 2009.
  • Total worldwide digital advertising is expected to grow from $72 billion in 2010 to $163 billion in 2016, according to eMarketer.
  • RTB is expanding faster than any other segment on digital advertising exchanges.
  • RTB sales are expected to grow from $3 billion in 2012 to $14 billion in 2016.

As for Rocket Fuel’s market penetration, the company has been absolutely explosive since its inception in 2008. In just over five years, the company’s customer base includes 65 of the Advertising Age 100 leading National Advertisers, and over 40 Fortune 100 companies.

The company’s total active customer base has increased from 151 in 2010, to 266 in 2011, to in 2012, to 784 mid-year 2013. Additionally, customer retention rate sits at a healthy 94%.

Alongside its rapidly growing customer base, Rocket Fuel has boosted revenue from $16.5 million in 2010, to $44.7 million in 2011, to $106.6 million in 2012. And for the first half of 2013, Rocket Fuel has already completed $92.6 million in sales.

The company is looking at an incredibly impressive compound annual growth rate of 154%.

With its innovative technology, rapid sales growth, and rising market penetration in a growing industry, there is very little reason not to be bullish on Rocket Fuel.

Turning progress to profits,

  JS Sig

Jason Stutman

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