With the magic of tracking “cookies,” however, companies like Rocket Fuel can build more accurate profiles of Web surfers, follow them around the Internet, and help advertisers target them more effectively regardless of what website they are currently visiting

Updated September 20, 2013, 6:30 p.m. ET

Don’t Bask in Rocket’s Red Glare

A Stunning Debut, Yes, but Threats Loom

ROLFE WINKLER

Lots of people watch football. Not all of them drive pickup trucks and drink Coors Light. Fixing that problem online is why shares of online-ad technology firm Rocket Fuel FUEL +93.45% soared more than 90% Friday after its initial public offering. Online advertising can be just as inefficient as TV advertising, argues Matt Ackley, chief marketing officer at digital ad-management company Marin Software MRIN -1.54% . Web publishers often sell ads in one-time deals to advertisers based on the content on their sites.With the magic of tracking “cookies,” however, companies like Rocket Fuel can build more accurate profiles of Web surfers, follow them around the Internet, and help advertisers target them more effectively regardless of what website they are currently visiting. That is bad news for some publishers, who are having more trouble selling their own space at a premium.

But advertisers love the results: Rocket Fuel’s revenue less media costs rose 140% in the first half of the year. At a valuation of roughly $2.2 billion, investors are fired up, too, valuing the unprofitable company at nearly 10 times potential 2014 sales.

Rocket Fuel may yet stall considering the bad taste created by “cookie” technology.Apple‘s AAPL -1.04% Safari browser blocks third-party cookies, the kind used by Rocket Fuel. Mozilla, distributor of the more popular Firefox browser, plans to do the same. GoogleGOOG +0.53% which makes the Chrome browser, is considering replacing cookies with a new technology.

Meanwhile, cookies are good at tracking users on the Web but not inside mobile apps. So the shift to mobile may also clip Rocket Fuel’s growth.

Another issue may be FacebookFB +3.28% on which Rocket Fuel’s social-media offering for advertisers is “entirely dependent,” the company says. The nice growth spurt made possible by Facebook recently opening up its advertising inventory may slow.

For now, Rocket Fuel is on a nice glide path. Maintaining its altitude may not be as easy as its first-day stock performance would suggest.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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