Rocket Fuel Inc. Soars on Buyout Offer

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Rocket Fuel , a company that operates a programmatic media-buying platform, soared Friday after it received an unsolicited buyout offer from competitor Gravity4. Mixed earnings reported on Thursday had sent the stock tumbling after-hours, but the $350 million buyout offer more than reversed that decline. At 1 p.m., the stock was up about 12%.

So what: Since going public in late 2013, shares of Rocket Fuel have collapsed. The stock reached a high of $66 per share in early 2014 only to tumble over the next year-and-a-half, sinking below $8 per share in recent days. The company's market capitalization peaked at over $2 billion, nearly a factor of six higher than the buyout offer.

This offer comes amid a challenging time for Rocket Fuel. Revenue has been growing rapidly, but losses are growing as well. During the first quarter, Rocket Fuel reported revenue of $104.3 million, up 40% year-over-year. A GAAP net loss of $36.9 million was more than triple the net loss in the first quarter of 2014, and non-GAAP numbers were negative and deteriorating as well. Even adjusted EBITDA, a metric that excludes just about every expense under the sun, was negative, a loss of $13.6 million, worse than a loss of $2.4 million reported during the first quarter of 2014.

Rocket Fuel is currently evaluating the buyout proposal, and investors should expect to hear an answer from the company in the coming days or weeks.

Now what: Rocket Fuel is the quintessential example of a hyped-up technology IPO going terribly wrong. All the buzzwords are there Big Data, programmatic media buying, artificial intelligence. What isn't there is a viable business model, and early investors in the company have suffered big losses as a result. This buyout offer looks like it could be the best option for the company.

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Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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