Intrinsic value of Rocket Fuel - FUEL

Previous Close

$2.60

  Intrinsic Value

$0.46

stock screener

  Rating & Target

str. sell

-82%

  Value-price divergence*

-25%

Previous close

$2.60

 
Intrinsic value

$0.46

 
Up/down potential

-82%

 
Rating

str. sell

 
Value-price divergence*

-25%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of FUEL stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -1.30
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  456
  465
  476
  488
  502
  517
  534
  552
  572
  593
  615
  640
  666
  693
  723
  754
  787
  822
  859
  898
  939
  983
  1,029
  1,077
  1,128
  1,182
  1,238
  1,298
  1,361
  1,426
  1,496
Variable operating expenses, $m
 
  667
  682
  700
  720
  741
  765
  791
  820
  850
  883
  917
  955
  994
  1,037
  1,081
  1,129
  1,179
  1,232
  1,288
  1,347
  1,409
  1,475
  1,545
  1,618
  1,695
  1,776
  1,861
  1,951
  2,046
  2,145
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  514
  667
  682
  700
  720
  741
  765
  791
  820
  850
  883
  917
  955
  994
  1,037
  1,081
  1,129
  1,179
  1,232
  1,288
  1,347
  1,409
  1,475
  1,545
  1,618
  1,695
  1,776
  1,861
  1,951
  2,046
  2,145
Operating income, $m
  -58
  -202
  -207
  -212
  -218
  -224
  -232
  -240
  -248
  -257
  -267
  -278
  -289
  -301
  -314
  -327
  -342
  -357
  -373
  -390
  -408
  -427
  -446
  -468
  -490
  -513
  -537
  -563
  -591
  -619
  -649
EBITDA, $m
  -9
  -180
  -184
  -188
  -194
  -200
  -206
  -213
  -221
  -229
  -238
  -247
  -257
  -268
  -279
  -291
  -304
  -317
  -332
  -347
  -363
  -380
  -397
  -416
  -436
  -456
  -478
  -501
  -525
  -551
  -578
Interest expense (income), $m
  4
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
Earnings before tax, $m
  -65
  -202
  -207
  -212
  -219
  -225
  -233
  -241
  -250
  -259
  -269
  -280
  -292
  -304
  -317
  -331
  -346
  -362
  -378
  -396
  -414
  -434
  -454
  -476
  -499
  -523
  -548
  -575
  -603
  -632
  -663
Tax expense, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -66
  -202
  -207
  -212
  -219
  -225
  -233
  -241
  -250
  -259
  -269
  -280
  -292
  -304
  -317
  -331
  -346
  -362
  -378
  -396
  -414
  -434
  -454
  -476
  -499
  -523
  -548
  -575
  -603
  -632
  -663

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  84
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  303
  223
  229
  234
  241
  248
  256
  265
  275
  285
  296
  307
  320
  333
  347
  362
  378
  395
  413
  431
  451
  472
  494
  517
  542
  568
  595
  623
  654
  685
  718
Adjusted assets (=assets-cash), $m
  219
  223
  229
  234
  241
  248
  256
  265
  275
  285
  296
  307
  320
  333
  347
  362
  378
  395
  413
  431
  451
  472
  494
  517
  542
  568
  595
  623
  654
  685
  718
Revenue / Adjusted assets
  2.082
  2.085
  2.079
  2.085
  2.083
  2.085
  2.086
  2.083
  2.080
  2.081
  2.078
  2.085
  2.081
  2.081
  2.084
  2.083
  2.082
  2.081
  2.080
  2.084
  2.082
  2.083
  2.083
  2.083
  2.081
  2.081
  2.081
  2.083
  2.081
  2.082
  2.084
Average production assets, $m
  109
  111
  114
  117
  120
  124
  128
  132
  137
  142
  147
  153
  159
  166
  173
  180
  188
  196
  205
  215
  225
  235
  246
  257
  270
  282
  296
  310
  325
  341
  357
Working capital, $m
  16
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
Total debt, $m
  86
  9
  12
  16
  20
  24
  29
  35
  40
  47
  54
  61
  69
  77
  86
  95
  105
  115
  126
  138
  150
  163
  177
  191
  207
  223
  239
  257
  276
  295
  316
Total liabilities, $m
  216
  139
  142
  146
  150
  154
  159
  165
  170
  177
  184
  191
  199
  207
  216
  225
  235
  245
  256
  268
  280
  293
  307
  321
  337
  353
  369
  387
  406
  425
  446
Total equity, $m
  87
  85
  87
  89
  91
  94
  97
  100
  104
  108
  112
  116
  121
  126
  132
  137
  143
  150
  156
  163
  171
  179
  187
  196
  205
  215
  225
  236
  248
  260
  272
Total liabilities and equity, $m
  303
  224
  229
  235
  241
  248
  256
  265
  274
  285
  296
  307
  320
  333
  348
  362
  378
  395
  412
  431
  451
  472
  494
  517
  542
  568
  594
  623
  654
  685
  718
Debt-to-equity ratio
  0.989
  0.100
  0.140
  0.180
  0.220
  0.260
  0.300
  0.340
  0.390
  0.430
  0.480
  0.520
  0.570
  0.610
  0.650
  0.690
  0.730
  0.770
  0.810
  0.840
  0.880
  0.910
  0.940
  0.980
  1.010
  1.030
  1.060
  1.090
  1.110
  1.140
  1.160
Adjusted equity ratio
  0.014
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -66
  -202
  -207
  -212
  -219
  -225
  -233
  -241
  -250
  -259
  -269
  -280
  -292
  -304
  -317
  -331
  -346
  -362
  -378
  -396
  -414
  -434
  -454
  -476
  -499
  -523
  -548
  -575
  -603
  -632
  -663
Depreciation, amort., depletion, $m
  49
  22
  23
  23
  24
  25
  26
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
Funds from operations, $m
  19
  -180
  -184
  -189
  -195
  -201
  -207
  -214
  -222
  -231
  -240
  -250
  -260
  -271
  -283
  -295
  -308
  -322
  -337
  -353
  -369
  -387
  -405
  -424
  -445
  -466
  -489
  -513
  -538
  -564
  -592
Change in working capital, $m
  -2
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
Cash from operations, $m
  21
  -180
  -184
  -189
  -195
  -201
  -208
  -215
  -223
  -231
  -240
  -250
  -261
  -272
  -284
  -296
  -309
  -323
  -338
  -354
  -370
  -388
  -406
  -426
  -446
  -468
  -490
  -514
  -539
  -566
  -593
Maintenance CAPEX, $m
  0
  -22
  -22
  -23
  -23
  -24
  -25
  -26
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
New CAPEX, $m
  -16
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
Cash from investing activities, $m
  -16
  -24
  -25
  -26
  -26
  -28
  -29
  -30
  -31
  -32
  -33
  -35
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -63
  -67
  -70
  -73
  -77
  -81
  -85
Free cash flow, $m
  5
  -204
  -209
  -215
  -221
  -229
  -236
  -245
  -254
  -264
  -274
  -285
  -297
  -310
  -324
  -338
  -353
  -369
  -386
  -404
  -423
  -443
  -464
  -486
  -510
  -534
  -560
  -587
  -616
  -646
  -678
Issuance/(repayment) of debt, $m
  -1
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
Issuance/(repurchase) of shares, $m
  4
  204
  209
  215
  221
  228
  236
  244
  253
  263
  273
  285
  297
  309
  323
  337
  352
  368
  385
  403
  422
  442
  463
  485
  508
  532
  558
  585
  614
  644
  676
Cash from financing (excl. dividends), $m  
  1
  207
  212
  219
  225
  233
  241
  249
  259
  269
  280
  292
  305
  317
  332
  346
  362
  378
  396
  415
  434
  455
  477
  499
  523
  548
  575
  603
  633
  664
  697
Total cash flow (excl. dividends), $m
  5
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
Retained Cash Flow (-), $m
  47
  -204
  -209
  -215
  -221
  -228
  -236
  -244
  -253
  -263
  -273
  -285
  -297
  -309
  -323
  -337
  -352
  -368
  -385
  -403
  -422
  -442
  -463
  -485
  -508
  -532
  -558
  -585
  -614
  -644
  -676
Prev. year cash balance distribution, $m
 
  4
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -197
  -206
  -211
  -217
  -224
  -231
  -239
  -248
  -257
  -267
  -278
  -290
  -302
  -315
  -329
  -343
  -359
  -375
  -393
  -411
  -430
  -450
  -472
  -494
  -518
  -543
  -570
  -598
  -627
  -657
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  -189
  -189
  -184
  -179
  -174
  -168
  -162
  -155
  -148
  -140
  -132
  -124
  -115
  -106
  -97
  -87
  -78
  -69
  -60
  -52
  -44
  -37
  -31
  -25
  -20
  -16
  -12
  -9
  -7
  -5
Current shareholders' claim on cash, %
  100
  36.4
  13.2
  4.8
  1.7
  0.6
  0.2
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Rocket Fuel Inc. is a technology company, which offers a Programmatic Marketing Platform that is designed for helping marketers and their agencies to connect with consumers through digital media. The Company's service offerings are organized around platforms, including Data Management Platform (DMP) and Demand Side Platform (DSP), which are used by customers themselves or integrating with other customer relationship management or marketing platforms, and together in various permutations as its Programmatic Marketing Platform. The integrated platform is designed to deliver and optimize media spend to engage, upsell and retarget consumers across addressable channels, including display, mobile and video, and across addressable devices, such as tablets, set top boxes, television and mobile phones. It offers Programmatic Marketing Platform as a managed service, which it operate on behalf of its customers, and as a self-service platform operated by its customers or their agencies directly.

FINANCIAL RATIOS  of  Rocket Fuel (FUEL)

Valuation Ratios
P/E Ratio -1.8
Price to Sales 0.3
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 5.7
Price to Free Cash Flow 24
Growth Rates
Sales Growth Rate -1.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -33.3%
Cap. Spend. - 3 Yr. Gr. Rate -4.4%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 6.9%
Total Debt to Equity 98.9%
Interest Coverage -15
Management Effectiveness
Return On Assets -19.1%
Ret/ On Assets - 3 Yr. Avg. -27.2%
Return On Total Capital -33.8%
Ret/ On T. Cap. - 3 Yr. Avg. -41.5%
Return On Equity -59.7%
Return On Equity - 3 Yr. Avg. -60.7%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 36.6%
Gross Margin - 3 Yr. Avg. 41.4%
EBITDA Margin -2.6%
EBITDA Margin - 3 Yr. Avg. -15.4%
Operating Margin -12.7%
Oper. Margin - 3 Yr. Avg. -23.6%
Pre-Tax Margin -14.3%
Pre-Tax Margin - 3 Yr. Avg. -25.5%
Net Profit Margin -14.5%
Net Profit Margin - 3 Yr. Avg. -25.3%
Effective Tax Rate -1.5%
Eff/ Tax Rate - 3 Yr. Avg. 1.6%
Payout Ratio 0%

FUEL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FUEL stock intrinsic value calculation we used $456 million for the last fiscal year's total revenue generated by Rocket Fuel. The default revenue input number comes from 2016 income statement of Rocket Fuel. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our FUEL stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for FUEL is calculated based on our internal credit rating of Rocket Fuel, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Rocket Fuel.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of FUEL stock the variable cost ratio is equal to 143.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for FUEL stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.7% for Rocket Fuel.

Corporate tax rate of 27% is the nominal tax rate for Rocket Fuel. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the FUEL stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for FUEL are equal to 23.9%.

Life of production assets of 2.2 years is the average useful life of capital assets used in Rocket Fuel operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for FUEL is equal to 2.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $87 million for Rocket Fuel - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 46.992 million for Rocket Fuel is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Rocket Fuel at the current share price and the inputted number of shares is $0.1 billion.

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Financial statements of FUEL
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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