Rocket Fuel’s attempt to turn its business from an ad net to a growing software provider continues. The success of that effort may boil down to its chances with three holding companies.
The company’s Q2 2016 net revenues fell 7% year over year to $66 million, it reported Tuesday, and GAAP revenue declined 3% YoY. This exceeded the company's guidance given during the Q1 earnings call, and CEO Randy Wootton pointed to more positive elements – for instance, that Rocket Fuel's platform solutions business now represents 18% of GAAP revenue versus 6% this time last year. Read the release.
“I suspect in 2017 we’ll be talking about our return to growth,” Wootton told AdExchanger.
Those growth drivers include creating software solutions for agencies via holding company-level deals – something Wootton discussed last quarter.
They also include penetration into systems integrators or consultancies like Deloitte or Accenture. Wootton said Rocket Fuel was working with one already, but declined to name the partner.
And he anticipates growth from direct sales to marketers “who want to take [programmatic] in-house and have more control over identity management and activation technologies.” He pointed to the July hire of Chief Revenue Officer Rick Song, who has experience selling to brands in particular.
But the cheese is at the holding companies.
Last quarter, penetration with international agencies drove 6% YoY net revenue growth. The international line of business is still rolling, up 31% YoY this quarter to $24.1 million.
“But to be frank, it’s growth on top of relatively smaller dollars than what you see in the States, and some of the agencies in EMEA are just coming into programmatic,” Wootton conceded.
The North American agencies were Rocket Fuel’s bugbear last quarter, and remain so this quarter – which is why the company is trying to get in good with the agency trading desks. (Total North America revenue was $92.8 million, a 9% YoY decrease.)
When Wootton took over as CEO last November, Rocket Fuel bit off more than it could chew by engaging with all six holding companies. It then whittled that effort down to four, moved forward with three and has over the last few months focused on building out unique capabilities for one (undisclosed) holding company.
“And it’s hard because they have established partners in place, so you need to create real value,” Wootton said, adding that Rocket Fuel is close to signing a long-term software contract.
Even after the contract is signed, it’s a long process to get business within the holding company and show revenue.
“You need clearance by the trading desk that you’re a preferred partner,” Wootton said. “Then you have to convince the operating agencies and brands to use you. We have some where we have great relationships and others within the same holding company family that are more resistant to us.”
Which is why Rocket Fuel doesn’t expect any material revenue impact from any of the holding companies this year. “We were hoping for upside, but it’s not critical to us achieving our sweeping goal of being cash-flow positive this year,” Wootton said.