NEW YORK (TheStreet) -- Rocket Fuel (FUEL) made the negative headlines all too easy to write. The digital advertising company, whose motto is "artificial intelligence, real results," failed to deliver the first-quarter results that investors wanted.
$FUEL Misguided missile? Teresa Charpentier (@Caviar) May. 9 at 11:24 AM
$FUEL this rocket has no fuel - target 18? Old Turkey (@Partridge) May. 9 at 09:26 AM
The stock fell nearly 22% by the close Friday, to just under $22-per-share -- and continued to fall after-hours. A handful of analysts, including oft-watched Goldman Sachs, cut price targets in the wake of declining revenue growth. The company guided for revenue growth Thursday evening of between 62% and 69% in the second quarter of 2014. The projected growth was a substantial slowdown from the 95% year-over-year growth seen in the first quarter.
But investors on StockTwits.com said Friday that the stock shouldn't have crash landed. Sentiment on the stock was 70% bullish, according to StockTwits' analytics.
Earnings weren't exactly bad. Rocket Fuel reported a smaller-than-expected earnings per share loss of 18 cents, excluding some items. Consensus estimates called for a loss of 30 cents. Revenues, however, were light. The company reported $74.4 million instead of the $76.2 million analysts had anticipated, according to stats on the Analyst Ratings Network.
Rocket Fuel said sales would come in in between $88 million and $92 million. It guided for a loss of between $6 million and $4.5 million. That wasn't enough for some analysts to justify the company's valuation. After Friday's fall, the company still had a $739.6 million market cap. It trades at 57 times expected 2015 earnings.
Goldman Sachs downgraded the company today to neutral from buy. The analyst lowered the price target from $69 to $25 per share, citing concerns about declining average customer spending, according to the Analyst Ratings Network. BMO Capital Markets also downgraded the stock from outperform to market perform with a $25 target. Oppenheimer analysts maintained an outperform rating but lowered their price target to $44 per share. Evercore Partners reiterated an equal-weight rating and cut its target from $30 to $17 per share.
On Friday, StockTwits' investors said the ratings cuts were overdone. They argued that Rocket Fuel still expects to be profitable this year -- which is more than can be said for other hot IPO companies. Rocket Fuel management guided to profits somewhere between $3 million and $6 million on more than $420 million in sales.
Indeed, the stock is trading far below the consensus price target of $44 per share, according to stats on the Analyst Ratings Network. And Rocket Fuel continues to grow its customer base aggressively. The company's active customer count grew to 1,251 from 560 in the first quarter of 2013.
Not all analysts became more bearish after Thursday night's earnings release. Analysts at Piper Jaffray, Citigroup and Needham & Company reiterated their buy recommendations -- although Piper Jaffray shaved $10 off of its $70 price target.
However, though many argued that Rocket Fuel was worth more than $21 per share, few wanted to risk catching a falling knife Friday.
$FUEL Puts or Calls? Gut says calls, action says puts. Neutral for now.? Tim (@SmallFishBigSea) May. 9 at 09:29 AM
At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.