Rocket Fuel Stock Hits All-Time Low In Wake Of Insider Trades

rocketfuel-stockslumpRocket Fuel’s stock closed at $31.04 Friday, near its lowest point since the ad tech company went public six months ago. The sell-off comes after a group of more than seven investors and senior executives cashed out to the tune of more than $150 million, as reported by InsiderTradingWire. Those transactions, which earned more than $14 million each for the company’s top two executives, CEO George John and President Richard Frankel, took place between February 3 and February 7.

Rocket Fuel’s market cap is now just north of $1 billion, about half of the $2 billion where it made its NASDAQ debut last September.

Here are the largest of the insider stock sales from early February, according to InsiderTradingWire:

  • George John, CEO, sold $17,935,375
  • Abhinav Gupta, VP Engineering, sold $10,293,038
  • Richard Frankel, President, sold $14,627,030
  • J. Bardwick Peter, CFO, sold $1,000,738
  • John Gardner, investor at Nokia Growth Partners, sold $23,750,156
  • William Ericson, investor at MDV Ninth Partners, sold $101,063,336

Update: The sales appear to be part of a follow-on public offering that the company pre-announced in late January. In a registration document filed with the SEC, Rocket Fuel proposed to offer 2 million shares and certain selling stockholders signaled plans to sell 3 million. At the time, John called it “a necessary step in stabilizing the stock and making shares accessible to more investors.”

But since those sales the stock has fallen steadily, with only a brief reprieve toward the end of February.

Wall Street can get jittery when insiders sell large stock volumes, although in Rocket Fuel’s particular case it’s not clear whether the stock’s latest tumble is due to more insiders dumping smaller volumes of equity or (worse for Rocket Fuel) external investor fears that the insider trades signal a lack of faith from senior management.

Whether management is indeed losing faith, and if so what that might be attributable to, is anybody’s guess. But here are a few hypothetical fears that selling investors might be feeling – or projecting onto management.

  • The SaaS future comes soon. A market shift away from ad network models and toward software-based trading platforms could harm Rocket Fuel, as more agencies and brands decide to pursue self-serve models. The time horizon for this transition and Rocket Fuel’s ability to prepare for it are open questions.
  • “Take rate” pressure. Downward pressure on so-called “take rates,” defined as the percentage of a media buy the ad network company gets to keep after publishers are paid.
  • Supply side challenges. Within the last year, competition has intensified to secure exclusive supply side arrangements. Everyone is getting in on publisher development, including agency trading desks, ad networks, and even other publishers.
  • Mobile and video challenges. These categories are rife with pure plays. Rocket Fuel has made substantial investments but could be facing headwinds from new entrants and large platform companies.

Whatever the reason for its plunge, Rocket Fuel’s stock is not alone. Criteo, which went public around the same time, has seen its stock crumble too – to $28.94 from its debut at about $35 and from an all-time high near $60. And Matomy, when it cancelled plans for a London Stock Exchange IPO on April 3, cited in part “volatility” in ad tech share value.

Meanwhile Rubicon Project, which began trading on the New York Stock Exchange earlier this month, ended Friday at $19.49, near where it started.

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  1. The insider sales are especially cynical in the context of the dilution of equity with a secondary offering so very early in the company’s publicly traded life.

    From Rocket Fuel’s own investor relations page, speaking to Jim Cramer: “George explained that the secondary offering was a necessary step in stabilizing the stock and making shares accessible to more investors.” What a joke that turned out to be.

    The founders of Rocket Fuel are geniuses when it comes to computer science and mathematics, for years they built a private company with a passion to deliver best-in-class targeting optimization technologies and they achieved that vision. The IPO appeared to be a launching pad (pun intended) for their break-out from the small world of real time bidding and entry into the world of big brand advertising. Never in a hundred years would I have thought that the leadership at Rocket Fuel was just some clever guys getting ready to treat NASDAQ like an ATM machine.

    Investor beware – so be it. But, one has to wonder about the employees at Rocket Fuel who may have been counting on their options as an exciting part of their compensation package. What must they be thinking now? Rocket’s don’t do so well when they are deep underwater.

  2. I’m not sure why this is surprising. These guys have worked for many years for the same business, probably have 100% of their net-worth tied up in the business, took sub-market salaries for many years and probably took on a share of personal debt to make it happen. Now they want to diversify their assets a bit and maybe buy a house… wouldn’t pretty much everyone do the same?