Credit Suisse: Circumstances That Rocket Fuel Navigated In 2014 Were 'Likely Transitory'

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Rocket Fuel Inc FUEL is scheduled to report earnings on Thursday after market close, and analysts expect it to deliver EPS of ($0.21). The stock was up more than 3.5 percent $14.67 late in the session.

In a report published in Mid-January, Credit Suisse analysts commented on the stock and gave it an Outperform rating accompanied by a $31 price target. The firm points out that “the set of circumstances that FUEL navigated in 2014 were likely transitory, specifically: 1) greater budget controls toward agency trading desks, and 2) increased concerns on traffic quality stemming from bot-driven traffic.” While the bottom is difficult to call, the analysts believe that shares are near that point, and urge –patient- investors to remain with the story.

Moreover, the report states that the current forecast does not fully contemplate several potential catalysts, which include:

“(1) ARPU growth as a function of increased budget share of existing and new clients due to continued growth of programmatic; (2) Continued margin expansion as FUEL's algorithm outperforms competitors; (3) Integration of x+1 resulting in increased revenue and customer growth trajectory; (4) Optionality of mobile, video, and self-service, and licensing of technology via agency partnership.”

Some of Credit Suisse’s longer-term estimates assume continued active customer growth at an ~11 percent CAGR between fiscal 2015 and fiscal 2020 and “assume only a modest increase in aggregate ARPU longer-term as FUEL expands its platform to smaller advertisers.”

Revenue growth is expected around 52 percent to $622 million in fiscal 2015. Over the longer run, the firm sees a ~15 percent CAGR to reach $1.2 billion by fiscal 2020.

For the fourth quarter of 2014, Credit Suisse estimates total active advertisers at 1,675 versus 1,446 for the third quarter, and 1,224 a year ago. In addition to advertiser growth, the firm is modeling “a modest increase in aggregate ARPU year over year as a function of a seasonally strong quarter for direct response advertisers, and despite recent decreases in ARPU due to mix as Rocket Fuel continues to add incremental advertisers with smaller overall budgets.”

Revenue for the quarter is expected at $141 million versus guidance of $140-$165 million, while EPS are projected at ($0.17), compared to the aforementioned ($0.21) consensus.

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Posted In: Analyst ColorIntraday UpdateAnalyst RatingsMoversCredit Suisse
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