• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Technology

Rocket Fuel Runs Out of Gas

What went wrong, and what's in store for the company and its cohort?
By JIM CRAMER
May 09, 2014 | 01:31 PM EDT
Stocks quotes in this article: FUEL, ECOM, MM, RUBI

They are all different and they are all the same. I'm talking about the incredible shrinking e-commerce plays that came public to much fanfare and are now just purveyors of pure heartache to those who own their shares. The destruction in this segment of the stock market seems to be an almost weekly occurrence and it is spreading fear throughout everything Internet-related.

Today it's Rocket Fuel's (FUEL) turn to blow up. Here's an Internet commerce company that helps figure out how to place ads on the Web to get the biggest bang for the buck. It's part of a cohort of e-commerce plays that includes ChannelAdvisor (ECOM), Millennial Media (MM) and the Rubicon Project (RUBI). All these names have racked up gigantic losses for shareholders so far this year.

Run by George John, an actual rocket scientist and tech genius, Rocket Fuel optimizes the ads of companies trying to wind their way through the new systems that match ads to readers. The company is no stranger to Mad Money as I have had it on twice, mostly for informational purposes because I, too, have been very worried about this segment, in part because its forerunners, companies that helped design Web advertisements for Internet 1.0, were at the forefront of capital annihilation the last go around in 2000.

Rocket Fuel came public to much fanfare at $29 in September 2013, and immediately went to a 93% premium to close at $56. It hung up there, trading all the way up to $66 in January when it revealed terrific revenue growth and filed a follow-on offering of 5 million shares, 3 million of it from insiders including George John. The deal printed at $61 per share, not far from the high. It's been downhill ever since, with the stock losing more than 25% today to trade at $20.

What did Rocket Fuel do wrong? After reporting a quarter with sales growth of 95%, it announced that it would see growth slowing to between 62% and 69%. The losses would remain steep. The prospects for a profit would be far in the horizon.

There was a time when the market would have actually accepted this slowdown. Not anymore. A downgrade, Buy to Hold, from Goldman Sachs this morning was a big blow.

The decimation in this cohort is nothing short of unbelievable. ChannelAdvisor, which provides ecommerce advice for retailers, is now down 47% for the year after reporting a quarter with "only" 30% revenue growth. MillennialMedia, which provides mobile advertising solutions, is off 52% for the year after missing multiple projections and experiencing tumultuous management turnover. The Rubicon Project, another aider and abettor of Internet commerce, came public at $15 during the IPO-heavy week of April 2, rallied to $17 on the day and then proceeded to $22 20 days later before crashing down to terra firma at $12 -- if that is terra firma as we haven't seen an earnings report yet. That comes next week.

What's going on with this segment? I think there's so much competition, so much bloodletting, and so many well-capitalized companies that it may have been inevitable just as it was in 2000. It's just that the speed with which the denouement happened is breathtaking.

What will the future bring for these companies now? I suspect there will be a ton of mergers and maybe some failures as the shakeout proceeds apace. Suffice it to say, if the 2000 pattern plays out to its fullest, these stocks will remain toxic to both growth investors and value investors alike until they trade through their cash and stop losing money.

Until then, just rubberneck. It's not worth it to be a Good Samaritan. There may be nothing left to save.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity | Technology

More from Technology

I Find Draganfly's Connection to American Airlines Intriguing

Timothy Collins
Jan 15, 2021 12:29 PM EST

Drones are set to become a bigger and bigger part of the commercial world and our day-to-day lives.

Twitter Shares Are Just Plain Overvalued

Jim Collins
Jan 15, 2021 11:45 AM EST

Here's where Jack Dorsey's ship will start to sink.

World's Third-Largest Smartphone Maker Added to U.S. Military Blacklist

Alex Frew McMillan
Jan 15, 2021 8:30 AM EST

Xiaomi shares plunged in Hong Kong trade Friday after the Department of Defense said the mobile-phone maker is part of China's 'military-civil fusion'.

TSMC's Big 2021 Capex Budget Might Have Something to Do With Intel

Eric Jhonsa
Jan 14, 2021 3:29 PM EST

While expected demand from clients such as Apple and AMD is also probably motivating TSMC to invest more, the size of its 2021 capex budget suggests other factors are also at play.

According to My 'Intel,' AMD Is a Good Trade

Mark Sebastian
Jan 14, 2021 2:28 PM EST

Here's how to play Advanced Micro Devices.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:01 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    When it's time to sell, will you act or freeze?
  • 08:35 AM EST GARY BERMAN

    Wednesday Morning Fibocall for 1/13/2021

    Lower highs... SPX (Long-Term View) The 1/8/2...
  • 08:07 AM EST GARY BERMAN

    Tuesday Morning Fibocall for 1/12/2021

    Watch if the recent trend of lower highs continues...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login