System1, Inc. (NYSE: SST) is an innovative omnichannel customer acquisition marketing platform that is paving the way for a privacy-centric future in the digital advertising industry. With its Responsive Acquisition Marketing Platform (RAMP), System1 has established itself as a leader in leveraging advanced data science and technology to deliver high-intent customers to brands, advertisers, and publishers.
Company Background
Founded in 2013, System1 has quickly grown to become a dominant player in the digital advertising landscape. The company's origins trace back to the early days of the internet, when co-founders Michael Blend and others recognized the vast potential of online advertising. Initially, System1 focused on monetizing user traffic acquired by its network of partner websites. However, the company has since evolved to take a more holistic approach, expanding its capabilities to include owned and operated websites, data-driven advertising solutions, and a suite of privacy-focused products.
One of the key drivers of System1's success has been its ability to adapt to the rapidly changing digital advertising landscape. As consumer concerns over data privacy have grown, System1 has positioned itself as a leader in developing solutions that prioritize user privacy while still enabling effective and efficient advertising campaigns. This has been a critical differentiator for the company, as it navigates the shifting regulatory environment and evolving consumer preferences.
RAMP Platform and Owned Properties
At the heart of System1's offering is its proprietary RAMP platform, which operates seamlessly across major advertising networks and advertising category verticals. RAMP allows the company to acquire end-users and then efficiently monetize that traffic through its relationships with third-party advertisers and advertising networks. Crucially, RAMP is designed to operate in a privacy-centric manner, using advanced data science and algorithms to match consumer intent with the appropriate advertiser or advertising experience, without relying on personally identifiable information or third-party cookies.
System1's owned and operated portfolio of websites, which include leading search engines like info.com and Startpage.com, as well as digital media publishing sites and internet utilities such as HowStuffWorks, MapQuest, and CouponFollow, further strengthens its position in the market. These properties not only provide a valuable source of first-party data, but also allow the company to deliver engaging, privacy-focused user experiences.
Financials
In terms of financial performance, System1 has demonstrated consistent growth and profitability, despite the challenges posed by the COVID-19 pandemic and broader macroeconomic conditions. For the fiscal year 2024, the company reported revenue of $343.9 million, a decrease of 14% from the prior year. However, the company's adjusted gross profit for the year was $152.3 million, a decrease of just 1% year-over-year, highlighting its ability to maintain margins even in a volatile environment.
The company's financial results for the most recent quarter (Q4 2024) showed revenue of $88.8 million and a net loss of $23.6 million. Year-over-year, revenue decreased 14% compared to Q4 2023. For the full year 2024, System1 reported a net loss of $97.3 million.
System1 operates through two primary reportable segments: Owned and Operated Advertising (OO) and Partner Network. The Owned and Operated Advertising segment generated revenue of $281.9 million in 2024, a 14% decrease compared to the prior year, primarily due to a decreased supply of consumer sessions available to be acquired on certain marketing channels. The segment's adjusted gross profit was $108.2 million in 2024.
The Partner Network segment generated revenue of $62 million in 2024, a 15% decrease compared to the prior year, impacted by instability experienced in the Advertising Partner ecosystem generally starting in the fourth quarter of 2023. The segment's adjusted gross profit was $51.9 million in 2024.
System1's cost of revenue excluding depreciation and amortization decreased 23% to $191.6 million in 2024, primarily due to the decrease in the Owned and Operated Advertising segment.
Liquidity
System1's liquidity position has been bolstered by strategic moves such as the sale of its subscription reporting unit, Protected, to Just Develop It Limited (JDI) on November 30, 2023. The company used the proceeds from this sale to repay certain outstanding indebtedness and for general working capital purposes, improving its overall financial flexibility.
As of December 31, 2024, System1 had $63.6 million in unrestricted cash and $50 million available on its 2022 Revolving Facility. The company's debt-to-equity ratio was 3.10, while its current ratio and quick ratio were both 1.36.
Future Outlook and Challenges
Looking ahead, System1 remains focused on capitalizing on the growing demand for privacy-centric digital advertising solutions. The company's investment in AI-powered automation and its strategic positioning for the shift from Google's AdSense for Domains (AFD) to the newer Related Search on Content (RSOC) product suggest that it is well-equipped to navigate the evolving industry landscape.
For Q1 2025, System1 is estimating revenue to be between $69 million and $71 million, down 18% year-over-year at the midpoint. The company expects adjusted gross profit to grow 25% year-over-year at the midpoint, between $38 million and $40 million. Adjusted EBITDA is estimated to be between $9 million and $11 million, up over $9.5 million year-over-year at the midpoint. The company has not provided full year 2025 guidance due to ongoing volatility in their marketing-driven businesses, especially related to changes in the Google Search Partner Network.
Furthermore, System1's diversified portfolio of owned and operated websites, which span a range of verticals including couponing, private search, and mapping, provides a solid foundation for future growth. The company's recent acquisitions, such as CouponFollow, have also bolstered its capabilities and market presence.
However, System1 is not without its challenges. The company has faced volatility in its Google-related business, as the search giant implements rapid changes to its partner network products. This has resulted in significant fluctuations in revenue and profitability, which the company has had to navigate carefully.
Additionally, System1 has faced regulatory scrutiny and compliance requirements, particularly in the areas of data privacy and consumer protection. The company's ability to maintain its competitive edge while adhering to these evolving regulations will be crucial to its long-term success.
Despite these challenges, System1's strong track record, innovative technology, and focus on privacy-centric solutions position it well for continued growth and success in the ever-evolving digital advertising landscape. As the industry continues to grapple with the complexities of the post-cookie era, System1's RAMP platform and its diversified portfolio of owned and operated properties make it an intriguing player to watch in the years to come.
Corporate Structure and Strategic Developments
In June 2021, System1 entered into a business combination agreement, and on January 26, 2022, the company consummated the business combination with Trebia Acquisition Corp. Following the merger, the combined company was organized via an Up-C structure, in which substantially all of the assets and business operations of System1 are held by S1 Holdco, LLC.
A significant development in System1's history occurred on November 30, 2023, when the company completed the sale of its subscription reporting unit, Protected, to Just Develop It Limited (JDI), one of its significant shareholders. This sale represented a strategic shift that had a major effect on the company's results of operations. System1 used the proceeds from the sale to repay certain outstanding indebtedness and for general working capital purposes.
Throughout its history, System1 has faced various challenges, including competition from alternative technologies and dependence on key advertising partners. The company has navigated these challenges by focusing on expanding the number of advertising partners utilizing or integrated with RAMP, attracting and monetizing users with commercial intent through its owned and operated web properties, and optimizing bids and driving higher returns on advertising spend.
Geographic Markets and Industry Trends
System1 primarily operates in the United States, with some international operations in Canada and the Netherlands. International markets accounted for 36% of owned and operated revenue in Q4 2024, up from 26% in Q4 2023, indicating growing traction in these markets.
The digital advertising market in which System1 operates is experiencing rapid growth. Global digital advertising spend is expected to reach $871 billion by 2027, up from $668 billion in 2024, representing a compound annual growth rate (CAGR) of approximately 30%. This growth trajectory presents significant opportunities for System1 to expand its market share and enhance its service offerings.
Business Overview and Performance
System1 operates an omnichannel customer acquisition platform, delivering high-intent customers to brands, advertisers, and publishers. The company provides its services through its proprietary Responsive Acquisition Marketing Platform (RAMP), which allows it to monetize acquired end-users through relationships with third-party advertisers and advertising networks. RAMP operates across System1's network of owned and operated websites, as well as through third-party advertising platforms and publishers.
In terms of recent performance, System1 generated $38.6 million in adjusted EBITDA for the full year 2024, representing a 32% year-over-year growth. In Q4 2024, the company delivered $17.9 million in adjusted EBITDA, a 79% year-over-year increase and a 73% quarter-over-quarter increase, demonstrating strong momentum in its core business operations.
As System1 continues to navigate the dynamic digital advertising landscape, its focus on privacy-centric solutions, diversified revenue streams, and strategic acquisitions positions the company for potential growth and success in the coming years. The company's ability to adapt to regulatory changes, leverage its proprietary technology, and capitalize on the growing digital advertising market will be crucial factors in determining its long-term performance and market position.