Fluent, Inc. (NASDAQ:FLNT) has undergone a strategic transformation in recent years, repositioning itself to capitalize on the rapidly growing commerce media market. Once primarily focused on its owned and operated digital marketing platforms, the company has pivoted to establish a strong presence in the lucrative commerce media space, leveraging its decades of customer acquisition expertise and proprietary data.
Business Overview
Fluent was founded in 2010 as a data-driven performance marketing company, initially focusing on customer acquisition services and operating digital marketing campaigns to connect advertisers with consumers. Over the years, Fluent has built 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 clients.
In 2015, Fluent made a significant move by acquiring Fluent, LLC, which expanded its capabilities in digital marketing services and data-driven customer acquisition. This acquisition allowed Fluent to enhance its owned and operated digital media properties and strengthen its performance-based marketing offerings.
The company continued its growth trajectory in 2016 with the acquisition of Q Interactive, LLC, further bolstering its digital marketing expertise and data-driven solutions. These strategic acquisitions helped Fluent grow its customer base and deliver measurable marketing results to clients across a wide range of industries.
However, Fluent faced challenges in 2022 and 2023 related to increased regulatory scrutiny on its business practices. The company implemented compliance measures on its owned and operated marketplaces, which negatively impacted revenue and media margin during this period. Fluent worked diligently to navigate these regulatory hurdles while continuing to serve its clients and build its data-driven solutions.
Despite these challenges, Fluent has maintained its leadership position in the digital marketing industry, leveraging its proprietary data and expertise to provide effective customer acquisition and partner monetization services to its clients. The company’s focus on innovation, compliance, and delivering measurable results has been central to its long-term success.
In 2023, Fluent embarked on a strategic pivot, shifting its focus to the rapidly expanding commerce media market. This segment, which allows advertisers to reach consumers during the critical purchase journey on e-commerce and retail platforms, is expected to grow from an estimated $50 billion in 2023 to over $100 billion by 2026, according to Boston Consulting Group.
Fluent’s Commerce Media Solutions business has been the primary driver of the company’s recent growth. In the third quarter of 2024, this segment accounted for 16% of Fluent’s total revenue, up from just 3% in the prior-year period. More importantly, the Commerce Media Solutions business boasts significantly higher gross margins of 33%, compared to the company’s overall gross margin of 24%.
Fluent’s ability to leverage its extensive consumer data and performance marketing expertise has been instrumental in the rapid expansion of its Commerce Media Solutions. The company has secured long-term partnerships with a diverse array of commerce platforms, including retail, ticketing, quick-service restaurants, and grocery providers. These partnerships have enabled Fluent to deliver highly targeted and effective advertising solutions to its clients, driving strong revenue growth and improved profitability.
Financial Performance
Fluent’s financial performance in recent years has been marked by both challenges and promising signs of its strategic shift. In the third quarter of 2024, the company reported revenue of $64.5 million, a 9.9% sequential increase from the previous quarter. This growth was primarily driven by the continued expansion of the Commerce Media Solutions business, which generated $10.4 million in revenue, representing a 341% year-over-year increase.
However, Fluent’s owned and operated digital marketing business has faced headwinds, with revenue declining 18% year-over-year in the third quarter. This was largely attributable to the impact of the US presidential election, which drove significant advertising spend on social media platforms, making it increasingly difficult for Fluent to acquire media at acceptable margins.
Despite these challenges, Fluent has demonstrated progress in improving its profitability. The company’s media margin, which represents the portion of gross profit (exclusive of depreciation and amortization) reflecting variable costs paid for media and related expenses, increased to 28.1% of revenue in the third quarter, up from 26.7% in the previous quarter.
Fluent’s adjusted EBITDA, a non-GAAP metric that excludes the impact of various one-time and non-cash items, improved to negative $71,000 in the third quarter, compared to negative $1.7 million in the prior-year period. This progress reflects the company’s ongoing efforts to optimize its cost structure and drive efficiencies, particularly within its Commerce Media Solutions business.
For the full fiscal year 2023, Fluent reported revenue of $298.40 million, with a net loss of $63.22 million. The company generated operating cash flow of $8.14 million and free cash flow of $2.27 million during this period.
In the most recent quarter (Q3 2024), Fluent’s revenue was $64.52 million, with a net loss of $7.94 million. The company generated operating cash flow of $2.20 million and free cash flow of $5.75 million during the quarter.
Fluent operates in two main product segments: Data and Performance-Based Marketing, and Commerce Media Solutions. The Data and Performance-Based Marketing segment, which is Fluent’s core business, generated $62.13 million in revenue in Q3 2024, representing 96% of total revenue. This segment saw a 3% decrease compared to the prior year period, primarily due to challenges in acquiring media for Fluent’s owned and operated marketplaces as a result of changes in business practices to comply with the FTC Consent Order.
The Commerce Media Solutions segment, which involves Fluent embedding its proprietary ad-serving technology on partner sites, generated $10.40 million in revenue in Q3 2024, representing 16% of total revenue. This segment experienced significant growth, increasing by over 350% compared to the prior year period, driven by the addition of new long-term media partner contracts.
Fluent also generates revenue from other streams, including its call center-supported performance marketplace, which totaled $10.60 million in Q3 2024, representing 16% of total revenue.
Liquidity
As of September 30, 2024, Fluent had $7.84 million in cash, cash equivalents, and restricted cash. The company’s debt-to-equity ratio stood at 1.90, reflecting its leveraged position. Fluent has a credit facility with SLR Credit Solutions that provides a $20 million term loan and a $30 million revolving credit facility, which had an outstanding principal balance of $32.5 million as of September 30, 2024. The credit facility matures on April 2, 2029.
The company’s current ratio and quick ratio were both 0.94 as of September 30, 2024, indicating that Fluent’s short-term liquidity position is somewhat tight. Management will need to carefully manage working capital to ensure sufficient liquidity for ongoing operations and strategic initiatives.
Outlook and Risks
Looking ahead, Fluent expects to continue its momentum in the Commerce Media Solutions segment, projecting double-digit revenue growth in 2025. The company is actively expanding its partnerships with commerce platforms across various verticals, including entertainment, travel, and finance, in addition to its existing retail, ticketing, and grocery relationships.
For the fourth quarter of 2024, Fluent anticipates continued strong quarter-over-quarter revenue growth. The company expects its Commerce Media Solutions business to continue accelerating, with revenue reaching over a $50 million annual run rate as of September 2024. Fluent is targeting improvements in its adjusted EBITDA margin as the revenue mix continues to shift towards the higher-margin Commerce Media Solutions business.
However, Fluent’s owned and operated digital marketing business remains vulnerable to macroeconomic conditions and industry-specific challenges. The company’s ability to acquire high-quality consumer traffic at acceptable margins is crucial to the performance of this segment, and any disruptions in this area could impact Fluent’s overall financial results.
Additionally, Fluent faces risks associated with the highly competitive and rapidly evolving digital advertising landscape. The company must continually adapt its strategies and technologies to stay ahead of its competitors and meet the evolving needs of its clients.
Fluent is also exploring an adjacent Loyalty Solutions business, where it believes it can play a differentiated, industry-leading role in enhancing consumer engagement and retention for its commerce partners. This initiative represents a potential new avenue for growth but may also require significant investment and resources to develop successfully.
Conclusion
Fluent’s strategic pivot to the commerce media market has been a critical step in the company’s evolution. By leveraging its deep consumer insights and performance marketing expertise, Fluent has been able to establish a strong foothold in this high-growth segment, driving improved financial performance and positioning itself for continued success.
As Fluent continues to expand its commerce media partnerships and diversify its revenue streams, investors will be keen to monitor the company’s ability to navigate the challenges of its legacy business while capitalizing on the significant opportunities presented by the booming commerce media industry. The company’s success in executing its strategic shift towards higher-growth, higher-margin Commerce Media Solutions, while stabilizing its core owned and operated marketplace business, will be crucial in determining its long-term prospects in the dynamic digital advertising landscape.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.