Rocket Fuel Sees Lift From Efficiency Push, Trading Desk Courtships

rocket-fuel-q4Rocket Fuel turned in a better than expected second quarter, bolstered by enterprise sales of its DMP/DSP products, deal-making with holding companies, and cost savings from layoffs earlier this year.

The successes helped the programmatic ad network and ad tech company post a 30% rise in gross revenue to $120 million and achieve “positive adjusted EBITDA” (though still a net loss) ahead of schedule. (Read the earnings release.)

The company’s apparent progress with agencies and their trading desks was perhaps the most striking note during management’s call with investors. Earnings calls in Q3 2014 and Q1 2015 were marred by handwringing over Rocket Fuel’s need to create formal agreements with agencies and systems integrators, as the classic model of insertion order-based media acquisition gave way to licensing-based technology deals that were often managed at the holding company level.

“Rocket Fuel faced pretty significant headwinds with trading desks, and we had to change across a number of dimensions,” interim CEO Monte Zweben told investors Wednesday. “We had to change pricing flexibility, transparency, even features and functions as we built technology for them to use instead of just for us to use.”

Since then, Rocket Fuel has entered agreements with major agencies and system integrators, including Merkle and Interpublic Group’s Cadreon trading desk. In the case of Merkle, Rocket Fuel has successfully sold its DMP to five of the agency’s clients.

That said, the deals are not exclusive to Rocket Fuel, and the company could find itself beaten out by competitors like Criteo. “We’ve got to prove ourselves as a technology partners. They already have a number of partners,” Zweben said.

Also in Q2, Rocket Fuel continued layoffs it began in Q1. Headcount shrank by 175, or 15%, to 1,008 as the company raced to adopt efficiency measures that would put it on track to profitability.

Since the hire of Randy Wootton in March, Rocket Fuel has implemented a new sales org structure with three groups built around agency relations, direct sales to marketers and partnerships. The company said 69 marketers bought its managed services directly in Q2; and 24% of revenue is now sourced to direct relationships with marketers, versus 76% from agencies. That’s up from 10%/90% one year ago – although the comparison is somewhat misleading since the year-ago period did not reflect the company’s Q3 acquisition of [X+1].

Rocket Fuel also continues to evolve its market positioning. The company that relentlessly plugged its strong-performing “AI” technology has added a new (trademarked) buzz term, “moment scoring,” to describe its ability to algorithmically predict consumer engagement and receptivity with an ad message.

Whatever the product razzle dazzle may be, the company’s success will in large part be determined by its ability to create enterprise-level, SaaS-based agreements. And Rocket Fuel’s Q2 earnings appeared to offer the first upbeat assessment of its ability to do that in some time.

“You’ll see more of these situations where we embed our technology into larger platforms … as well as establish relationships with other system integrators and direct marketing agencies,” said CFO Dave Sankaran. “With regard to selling direct to marketers, we’re very excited … there has been significant change.”

Correction: An earlier version said Rocket Fuel added 16 direct-to-marketer relationships in Q2. In fact the company said 69 marketers directly bought its managed services during the quarter. 

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