Will Small Cap Rocket Fuel Inc (FUEL) Add Rocket Fuel to Your Portfolio? SOCL & PBS

On Monday, shares of small cap Rocket Fuel Inc (NASDAQ: FUEL) took off like a rocket by surging 18.96% after plunging about 20% on Friday after earnings – meaning it might be time to take a closer look at the stock as well as benchmark it with the performance of the Global X Social Media Index ETF (NASDAQ: SOCL) and the PowerShares Dynamic Media Portfolio ETF (NYSEARCA: PBS).

What is Rocket Fuel Inc?

Despite its name, small cap Rocket Fuel Inc has nothing to do with rocket fuel or the energy sector because the company delivers a "leading programmatic media-buying platform at big data scale designed to use the power of artificial intelligence" to improve marketing ROI in digital media across web, mobile, video, and social channels. Specifically, Rocket Fuel Inc's Advertising That Learns™ platform is used to achieve measurable business goals across a diverse array of campaigns across web, mobile, social and video channels; brand and direct response objectives, and diverse industries from luxury cars to groceries. The company currently has 19 offices worldwide and customers across North America, Europe and Japan. 

For reference or benchmarking purposes, the Global X Social Media Index ETF invests in stocks involved in social networking, file sharing and other web-based media applications while the PowerShares Dynamic Media Portfolio ETF is based on the Dynamic Media Intellidex Index which is comprised of common stocks of 30 US media companies that are principally engaged in the development, production, sale and distribution of goods or services used in the media industry.

What You Need to Know About Rocket Fuel Inc

On Thursday after the market closed, Rocket Fuel Inc reported 132% revenue growth to $62.5 million along with a net loss of $6.9 million verses a net loss of $2.0 million or an adjusted net loss of $1.8 million. The Chairman and CEO noted:

"Compared to last year's third quarter, we more than doubled our customer base and more than tripled the percent of revenue coming from new advertising channels that include mobile, social and video, to 26% of our total revenue.  We maintained our focus on increasing market share, investing heavily in growth, continuing to expand our big data technology platform and Artificial Intelligence technology, and adding high-quality employees."

The company also gave an above Wall Street expectations revenue projection of $74 million to $77 million for the fourth quarter, but the problem was that investors (at least on Friday) did not like the fact that revenues have not trickled down to the bottom line. Net losses for the last three years have also been $10.34M (2012), $4.33M (2011) and $3.24M (2010) plus net losses of $3.84M (3 months ending 2013-06-30) and $8.07M (3 months ending 2013-03-31) so far this year.

Moreover and last September, Rocket Fuel Inc debuted at $29 a share (at the high end of the expected price range of $27 to $29 per share) and surged 94% to $56.10 on its first day of trading to raise $116 million for the company – meaning they aren't endanger of running out of cash soon but obviously someone other than retail investors has made alot of money on the stock. The Wall Street Journal's MoneyBeat column also noted around the time of the IPO that Rocket Fuel Inc managed to tap into the hoopla surrounding the mega-trend of big data e.g. the collection and rapid analysis of huge sets of numbers or documents. So the reason it soared after the IPO may have just been about good timing. 

Hot High Tech Companies For 2014

In addition, the Friday earnings report also had bad timing because as noted by BMO Capital's Daniel Salmon:  

"Weak results and guidance from Tremor Video (TRMR, Not rated, down 49% on Friday) exacerbated a valuation reversal for the ad tech group that peaked around the Criteo (CRTO, Not Rated) IPO on Oct. 30. Since then, investors have become more focused on long-term margin concerns; real competitive changes – like Facebook opening FBX to Google Bid Manager and upgrading Custom Audiences to facilitate retargeting – were among the catalysts for this."

He also upgraded upgraded Rocket Fuel Inc from Market Perform to Outperform with a price target of $50.00 (from $65.00).

Share Performance: Rocket Fuel Inc vs. SOCL & PBS

On Monday, small cap Rocket Fuel Inc surged 18.96% to $45.04 (FUEL has a 52 week range of $37.81 to $68.56 a share) for a market cap of $1.49 billion, but the stock is also still down 19.7% since last September for retail investors. With that in mind, here is a look at the performance of Rocket Fuel Inc along with that of the Global X Social Media Index ETF and the PowerShares Dynamic Media Portfolio ETF:

As you can see from the above chart, both Rocket Fuel Inc and the Global X Social Media Index ETF have not been around that long but the PowerShares Dynamic Media Portfolio ETF has put in a very good performance for investors.

Finally, here is a quick look at the latest technical charts for all three investments:

The Bottom Line. Timing can be everything and investors in small cap Rocket Fuel Inc have seen what good and bad timing can do to an investment. With that said, more conservative investors might want to stick with the Global X Social Media Index ETF and the PowerShares Dynamic Media Portfolio ETF.