Executive Summary / Key Takeaways

• Transformative Pivot to Commerce Media: Fluent, Inc. is undergoing a significant strategic shift, moving from its legacy Owned and Operated (O&O) digital marketing business to high-growth Commerce Media Solutions (CMS), leveraging its proprietary first-party data and AI-powered technology for a distinct competitive advantage.
• Accelerating CMS Growth: The CMS segment is Fluent's primary growth engine, achieving 121% year-over-year revenue growth in Q2 2025 to $16.1 million, with an annual run rate exceeding $80 million. This growth is fueled by new partnerships, including Rebuy Engine, and is expected to continue at a triple-digit rate.
• Path to Profitability: Management projects positive adjusted EBITDA in Q4 2025, with full-year double-digit consolidated revenue growth and positive adjusted EBITDA profitability anticipated for 2026, driven by CMS scaling and margin expansion.
• Liquidity Bolstered, Going Concern Remains: A recent $10.3 million equity raise in August 2025 addresses immediate liquidity needs and satisfies debt covenant requirements, though management still acknowledges substantial doubt about the company's ability to continue as a going concern for the next year.
• Competitive Moat and Risks: Fluent's first-party data and performance marketing expertise offer a differentiated value proposition against larger programmatic competitors, but the company faces risks from O&O revenue decline, potential CMS margin compression, and broader macroeconomic uncertainties.

The Genesis of Fluent: A Data-Driven Evolution

Fluent, Inc. ($FLNT) began its journey in 2001, establishing itself as a digital marketing services provider. For over a decade, the company built its foundation on operating owned and operated (O&O) digital media properties, meticulously cultivating expertise in customer acquisition, engagement, and monetization. This period was marked by the development of a proprietary first-party data asset and advanced technology, which became the bedrock of its operations. Through strategic acquisitions like Fluent, LLC in 2015 and Q Interactive, LLC in 2016, the company expanded its technological capabilities and client relationships, solidifying its position in the performance marketing landscape.

The digital advertising industry, a dynamic and ever-evolving arena, is currently experiencing a profound transformation with the rise of commerce media. This burgeoning segment, projected to grow to over $100 billion in the next five years and account for 25% of all digital media spend by 2026, represents a significantly larger market opportunity than Fluent's traditional O&O business. Recognizing this shift, Fluent has embarked on a "transformational pivot" to Commerce Media Solutions (CMS), aiming to leverage its established strengths to capture a leading position in this high-growth market. This strategic reorientation is not merely an expansion but a fundamental re-imagining of Fluent's core business model.

Technological Edge: Fluent's Proprietary Moat

At the heart of Fluent's strategic pivot and its competitive differentiation lies its robust technological infrastructure and unparalleled first-party data. Over 15 years, Fluent has amassed a vast, proprietary database of self-declared user information and preferences. This rich data asset, combined with proprietary machine learning and AI-powered ad-serving technology, forms a critical "competitive moat" in the crowded digital marketing space.

This technology allows Fluent to identify consumers, understand their purchasing behavior, and serve highly relevant ads in milliseconds. The tangible benefits are significant and quantifiable: compared to head-to-head competition, Fluent's technology drives consumers who are "up over 25% more valuable" for advertisers, leading to a "20% uptick in revenue" for its media partners. This superior targeting accuracy and conversion efficiency are direct results of its data-driven approach. Furthermore, Fluent is actively developing a new "Loyalty Solution," an adjacent CMS offering designed to enhance consumer engagement and retention beyond post-transaction interactions. This innovative solution aims to turn loyalty programs into profit centers for partners by integrating non-endemic ad serving, a key differentiator from typical loyalty offerings.

Competitive Landscape and Strategic Positioning

Fluent operates in a competitive digital marketing ecosystem alongside larger, more established players. Key publicly traded competitors include The Trade Desk (TTD), Magnite (MGNI), and PubMatic (PUBM), each with distinct strengths. The Trade Desk, for instance, excels in programmatic advertising with a scalable, cloud-based platform known for its advanced technological infrastructure. Magnite focuses on the sell-side, helping publishers monetize inventory, while PubMatic emphasizes transparent, efficient ad transactions for both publishers and advertisers.

Comparing Fluent to these rivals reveals a nuanced competitive standing. While TTD, MGNI, and PUBM generally exhibit stronger financial performance with positive gross, operating, and net profit margins (e.g., TTD's Gross Profit Margin of 81% vs. Fluent's 22.31% TTM; TTD's P/S ratio of 23.60 vs. Fluent's 0.18 TTM), Fluent differentiates itself through a client-focused, performance-based approach. Its proprietary first-party data and AI-powered technology enable it to deliver superior, customized results for advertisers, a qualitative advantage that counters the broader technological scale of its programmatic competitors. Fluent's ability to drive more valuable consumers and higher partner revenue directly addresses a key need in the market, allowing it to compete effectively in niche segments where customization and direct engagement are paramount.

However, Fluent's smaller scale presents vulnerabilities, potentially leading to higher operational costs and slower innovation compared to its larger rivals. Its reliance on its O&O data, while a strength, could be impacted by the segment's decline, though the vast historical database mitigates immediate concerns. The company's strategic response is to leverage its O&O as a "springboard" for CMS, aiming to build a scalable, high-margin business that can eventually rival the financial efficiency of its competitors.

Strategic Evolution and Operational Performance

Fluent's strategic pivot is evident in its shifting revenue mix. The legacy Owned and Operated (O&O) business, once the company's growth engine, has faced significant headwinds. In Q2 2025, O&O revenue decreased approximately 49% year-over-year to $21.4 million. This decline is primarily due to the FTC Consent Order, which imposed rigorous standards on third-party publishers, and increased media costs on biddable platforms, exacerbated by "enormous social media advertising spend driven by the US presidential election" in late 2024. While O&O remains profitable and provides an "essential operational and capability platform" and cash flow for CMS expansion, management explicitly forecasts its continued decline, aiming to "stabilize that in later part of 2025" rather than pursuing growth.

The future, however, belongs to Commerce Media Solutions (CMS). This segment has demonstrated remarkable growth, with Q2 2025 revenue reaching $16.1 million, a 121% increase year-over-year. As of June 30, 2025, CMS represented 36% of consolidated revenue and boasted an annual revenue run rate exceeding $80 million. This rapid expansion is driven by new long-term contracts with media partners across diverse verticals like retail, ticketing, and quick-service restaurants. Fluent added 15 new partners to its CMS platform since the beginning of Q2 2025 and expanded its relationship with Authentic Brands. A key strategic partnership with Rebuy Engine, announced in Q1 2025, provides access to over 12,000 Shopify (SHOP) e-commerce brands, offering "additional upside" to Fluent's growth projections.

The Call Solutions and AdParlor segments, while smaller, play supporting roles. Call Solutions faced challenges from increased media costs and the discontinuation of its Affordable Care Act (ACA) business in Q3 2024 due to widespread fraudulent activity, resulting in a $2.5 million revenue write-down in Q4 2024. AdParlor experienced a revenue decrease due to the loss of a key retail customer in Q3 2024. These segments highlight the company's ongoing efforts to streamline operations and focus resources on higher-growth opportunities.

Financial Performance and Liquidity

Fluent's recent financial performance reflects the challenges of its strategic pivot and the decline in its O&O business, alongside the promising growth of CMS. For Q2 2025, consolidated revenue was $44.7 million, a 24% decrease from the prior year. The company reported a net loss of $7.2 million for the quarter. Media margin, a key non-GAAP metric, was $11.9 million (26.7% of revenue) in Q2 2025, consistent with the prior year's percentage but lower in absolute dollars. CMS media margin in Q2 2025 was 20% of CMS revenue, a decrease from 30.4% in Q2 2024. This compression is attributed to flexible pricing strategies to onboard new partners and enter new verticals, with management expecting a return to the "high 20s" by Q4 2025 as new solutions scale and monetization improves. Adjusted EBITDA for Q2 2025 was a loss of $2.8 million, an improvement from a loss of $4.5 million in Q2 2024.

Liquidity remains a critical area of focus. As of June 30, 2025, Fluent held $4.9 million in cash and cash equivalents, plus an additional $2.4 million in restricted cash. The company's total net long-term debt was $19.9 million. A significant concern was the "substantial doubt about the Company's ability to continue as a going concern" due to declining profitability and non-compliance with financial covenants under its SLR Credit Agreement. However, a crucial development occurred on August 19, 2025, when Fluent secured approximately $10.3 million in equity capital through a private placement. This capital raise was a condition for the Fifth Amendment to the SLR Credit Agreement, which waived the June 30, 2025, covenant non-compliance and modified covenants through August 31, 2026. This infusion of capital provides essential working capital to fuel CMS growth and support the path to profitability.

Outlook and Risks

Fluent's outlook is firmly anchored in the continued success of its Commerce Media Solutions. Management anticipates a "tipping point" in the second half of 2025, where CMS's financial impact will become increasingly visible in consolidated results. The company expects to achieve positive adjusted EBITDA in Q4 2025. Looking further ahead, Fluent projects full-year double-digit consolidated revenue growth and positive adjusted EBITDA profitability for 2026. This ambitious guidance is underpinned by the expectation that CMS will maintain its "triple-digit growth rate" throughout 2025 and 2026, becoming the majority of consolidated revenue by 2026.

Key assumptions supporting this outlook include the successful onboarding of new CMS partners, the expansion into new verticals (entertainment, travel, finance), and the monetization of new adjacent solutions like the Loyalty Solution. The Rebuy Engine partnership is viewed as a significant upside, providing access to a vast new sales channel. Management believes its marketplace model offers resilience against macroeconomic headwinds, as economic downturns tend to accelerate media partner adoption of CMS.

Despite the strategic clarity and recent capital raise, significant risks persist. The "substantial doubt about the Company's ability to continue as a going concern" remains a formal disclosure, highlighting ongoing financial fragility. While the recent equity raise provides a buffer, there is "no assurance that the available cash, plus availability under the borrowing base on the SLR Revolver will be sufficient to fund operations over the next twelve months." The risk of CMS margin compression, as noted in Q2 2025, could impact profitability if flexible pricing and new vertical monetization do not normalize as expected. Furthermore, the continued decline of the O&O business, coupled with regulatory pressures and media supply volatility, could adversely affect overall revenue and profitability if CMS growth does not meet expectations.

Conclusion

Fluent, Inc. stands at a pivotal juncture, executing a bold strategic pivot towards Commerce Media Solutions that promises to redefine its financial trajectory. By leveraging its deep well of proprietary first-party data and AI-powered technology, Fluent is carving out a differentiated niche in a rapidly expanding market, offering superior value to advertisers and partners alike. The impressive triple-digit growth in CMS, coupled with strategic partnerships and a clear roadmap for margin expansion, underpins the company's ambitious targets for consolidated profitability and revenue growth in 2026.

While the "going concern" flag and the challenges in its legacy O&O business underscore the inherent risks of this transformation, the recent $10.3 million equity infusion provides crucial runway. Fluent's ability to translate its technological advantages into sustained CMS growth and operational efficiency will be paramount. For discerning investors, Fluent represents a compelling, albeit high-risk, opportunity to invest in a company strategically repositioning itself for long-term value creation in the dynamic commerce media landscape, with a clear path to demonstrating the financial efficacy of its strategic vision.