Fluent, Inc. (NASDAQ:FLNT) is an industry leader in digital marketing services, primarily performing customer acquisition services by operating highly scalable digital marketing campaigns. The company has amassed a large, proprietary database of first-party, self-declared user information and preferences, which it leverages to serve targeted, relevant offers to consumers on behalf of its advertiser clients.
Business Overview
In 2023, Fluent delivered data and performance-based customer acquisition services for over 500 consumer brands, direct marketers, and agencies across a wide range of industries, including Media & Entertainment, Financial Products & Services, Health & Life Sciences, Retail & Consumer, and Staffing & Recruitment. The company generates revenue by delivering measurable marketing results to its clients, predominantly paid on a "per click," "per lead," or other "per action" basis that aligns with the customer acquisition cost targets of its clients.
Fluent's business model is centered around two key components: its owned and operated digital media properties, and its syndicated performance marketplace products. The company attracts consumers at scale to its owned and operated digital media properties primarily through promotional offerings where they are rewarded for completing activities within the platforms. Once users have registered on Fluent's sites, the company integrates its proprietary direct marketing technologies and analytics to engage them with surveys, polls, and other experiences, through which it learns about their lifestyles, preferences, and purchasing histories. Based on these insights, Fluent serves targeted, relevant offers to them on behalf of its clients.
In addition to its owned and operated media properties, Fluent also operates syndicated performance marketplaces on partner sites where it utilizes its proprietary ad-serving technology to identify and acquire additional consumers for its advertiser clients. These syndicated solutions generate meaningful income for Fluent's partners, while driving additional growth for its advertiser clients. The company typically remunerates its syndication partners on a revenue share or impression basis.
Financials
Fluent's financial performance in the first quarter of 2024 reflected the strategic pivot the company is making to leverage its leadership position in owned and operated marketplaces as a competitive advantage, while also accelerating the growth of its higher-margin syndicated performance marketplaces. For the quarter, the company reported revenue of $66.0 million, a 15% decrease compared to the first quarter of 2023. This decline was primarily attributable to the impact of Fluent's post-FTC settlement transition and related strategic and financial decisions, which resulted in the company exiting certain non-strategic revenue streams that no longer met its evolving quality standards.
However, Fluent's new syndicated performance marketplaces, such as AdFlow and its call solutions business, continued to demonstrate strong growth, with double-digit year-over-year increases, albeit off a smaller base. This shift in business mix contributed to an increase in media margin, which grew 1% year-over-year to $22.1 million, representing 33.6% of revenue for the first quarter of 2024, compared to 28.4% in the prior-year period.
Adjusted EBITDA for the first quarter of 2024 was $0.7 million, or 1.1% of revenue, reflecting the company's continued investment in its strategic growth initiatives. Fluent reported a net loss of $6.3 million for the quarter, compared to a net loss of $31.9 million in the first quarter of 2023. The company's annual net income for 2023 was -$63,218,000, with annual revenue of $298,399,000, annual operating cash flow of $7,606,000, and annual free cash flow of $1,743,000.
Outlook
Looking ahead, Fluent expects its owned and operated marketplaces to stabilize in the second half of 2024, with moderate sequential growth, while its performance marketplaces continue to grow at strong double-digit rates year-over-year. The company is targeting revenue growth of greater than 50% from its emerging businesses in 2024, which it believes will drive Fluent's return to year-over-year consolidated growth in the second half of the year. Additionally, Fluent expects its total gross profit to grow more rapidly than its revenue in the back half of 2024 as it enhances its market position.
One of the key drivers of Fluent's growth strategy is the continued expansion of its syndicated performance marketplaces, such as AdFlow and its call solutions business. AdFlow, the company's media solution in the rapidly growing commerce media market, has been delivering strong double-digit revenue growth, driven by new partner wins and the leveraging of Fluent's proprietary technology, machine learning, and data platform capabilities. The company sees significant opportunities to further expand AdFlow's capabilities beyond post-transaction engagement to include enhancing consumer engagement, retention, and loyalty across its partners' commerce platforms.
Fluent's call solutions business, which serves clients across an array of industries with a focus on the health insurance sector, is also growing at a double-digit pace. The company believes this business represents an attractive strategy, given its margin potential, which exceeds that of Fluent's core business. As the company scales its vertical market expansion in the call solutions business, it expects to continue growing existing partnerships and adding new partners who recognize its competencies.
While Fluent's owned and operated marketplaces have faced challenges due to the impact of the FTC consent order and macroeconomic headwinds, the company's strategic pivot to focus on its higher-margin syndicated performance marketplaces has been a key driver of its financial performance. The company's unique positioning in the industry, leveraging the analytical capabilities it has established over a decade with its owned and operated platform, has enabled it to successfully transition into these new, high-growth opportunities.
Fluent's geographic revenue breakdown shows that the majority of its revenue, 77%, is generated from the United States, with the remaining 23% coming from international markets, primarily Israel. The company's revenue is diversified across several key verticals, with Media & Entertainment, Financial Products & Services, Health & Life Sciences, Retail & Consumer, and Staffing & Recruitment each contributing a significant portion of its total revenue.
Risks and Challenges
One of the key risks facing Fluent is the potential for continued macroeconomic uncertainty and its impact on its advertiser clients' spending patterns. The company has experienced slowdowns in certain sectors, such as Media & Entertainment, Staffing & Recruitment, and Financial Products & Services, as clients have shifted their focus to return on ad spend rather than growth. Fluent has addressed this challenge by scaling other clients in the marketplace and diversifying its client base, but the company remains exposed to broader economic conditions.
Another risk factor is the ongoing regulatory environment and the company's ability to maintain compliance with evolving industry standards. Fluent has been proactive in establishing and executing leading-edge protocols, which it believes are the best-in-class model for the entire industry. However, the company has observed some competitors accelerating non-compliant marketing practices, which have put Fluent at a market disadvantage in scaling certain media channels. While Fluent expects these practices to be addressed by the FTC and other regulators, the company's strategic resolve to maintain its commitment to quality and compliance may continue to impact its short-term financial performance.
Conclusion
Despite these challenges, Fluent remains confident in its long-term growth strategy, which is centered around leveraging its owned and operated marketplaces to fuel the expansion of its higher-margin syndicated performance marketplaces. The company's unique positioning, analytical capabilities, and focus on delivering measurable results for its clients position it well to capitalize on the significant opportunities in the rapidly growing commerce media and health insurance sectors.
As Fluent continues to execute on its strategic initiatives, investors should closely monitor the company's progress in growing its emerging performance marketplaces, its ability to maintain its leadership position in industry compliance, and its success in diversifying its client base to mitigate the impact of macroeconomic headwinds. With a strong foundation in its owned and operated marketplaces and a clear vision for its future growth, Fluent appears well-positioned to deliver long-term value for its shareholders.