Commerce Media Solutions Will Open New Market Opportunities

Key Takeaways

• Fluent's focus on high-margin Commerce Media Solutions and major partnerships is expected to significantly boost revenue and market share.
  
• Strategic investment in AI technology and first-party data enhances efficiency, profitability, and positions Fluent in the growing commerce media industry.
  
• Declining revenue, rising media costs, and regulatory challenges threaten profitability and shareholder confidence, emphasizing vulnerability to market pressures and regulatory changes.

Catalysts

Provides data-driven digital marketing services in the United States and internationally.

• Fluent is experiencing significant growth in its Commerce Media Solutions, with 139% revenue increase in Q4 2024 and 284% for the full year. This segment is expected to continue triple-digit growth throughout 2025, potentially driving higher consolidated revenue.
  
• The company is shifting its business focus towards higher-margin Commerce Media Solutions, suggesting potential improvement in overall net margins as the segment grows to represent a larger portion of total revenue.
  
• Fluent’s growing list of major brand partnerships and an expanding pipeline of potential partners could enhance its market share, further boosting revenue and earnings potential.
  
• Investment in technology and first-party data over 14 years provides a robust foundation to leverage proprietary, AI-powered technology, which can enhance efficiency and improve profitability.
  
• Fluent's strategic repositioning in the $50 billion and growing commerce media industry offers a significant addressable market, likely enhancing future revenue growth and enterprise value.

Fluent Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fluent's revenue will grow by 7.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -11.5% today to 0.4% in 3 years time.
• Analysts expect earnings to reach $1.2 million (and earnings per share of $0.02) by about April 2028, up from $-29.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $3.2 million in earnings, and the most bearish expecting $-700.0 thousand.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 87.4x on those 2028 earnings, up from -1.5x today. This future PE is greater than the current PE for the US Media industry at 13.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.47%, as per the Simply Wall St company report.

Fluent Future Earnings Per Share Growth

Risks

• The company experienced a significant decrease in revenue from its owned and operated properties, a decline of 23% in Q4 2024 and 29% for the full year, which may continue to negatively impact total revenue if unreplaced by new growth.
  
• Adjusted EBITDA turned negative in the fourth quarter due to a $2.5 million ACA-related revenue write-off and increased media costs, indicating potential challenges in maintaining profitability and managing operating expenses.
  
• Increased media costs driven by events like the U.S. presidential election affected media margins significantly, demonstrating vulnerability to external market factors that can pressure net margins.
  
• The decision to discontinue the ACA portion of the Call Solutions business resulted in a one-time $2.5 million write-down, highlighting risks associated with regulatory changes and potential impacts on overall earnings.
  
• The company posted a net loss of $3.4 million in Q4 2024, compared to a loss of $1.9 million the prior year, suggesting difficulty in achieving profitability and potentially impacting shareholder confidence.

Valuation

• The analysts have a consensus price target of $3.5 for Fluent based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $316.7 million, earnings will come to $1.2 million, and it would be trading on a PE ratio of 87.4x, assuming you use a discount rate of 7.5%.
• Given the current share price of $2.17, the analyst price target of $3.5 is 38.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.