Shares in Fluent (NASDAQ:FLNT) stock, the company that calls itself a “performance marketing agency,” have had a good run in 2021.
They’re up 34%, trading at more than $7. Seen from the pandemic bottom in mid-March they’re a home run, up 400% since March 15.
But if you’re sitting on profits it may be time to bounce. Tech companies are no longer the flavor of the month. As the world comes out of the pandemic, real assets are back in favor.
What the Numbers Say
Ad agencies are notoriously hard to value. Most of their value comes from goodwill and other intangibles.
Fluent is no exception.
Fluent has a market cap of about $546million. Revenue for the first three quarters of 2020 came to $250 million. If it hits estimates for the full year when it reports March 11, total revenue will be $330 million. In 2019 revenue was $281 million. When you’re growing at 18% you don’t need to show a profit, but Fluent has one. It’s $1.5 million so far, 1 cent per share, and the estimate for the fourth quarter is 6 cents.
Fluent has $44 million in debt on $77 million in tangible assets, according to the third quarter balance sheet. The vast majority of its assets are intangibles, including $165 million in goodwill. Net operating cash flow through the first three quarters was $13 million.
That means on the bright side, you’re paying less than 2x revenue for a tech company that’s growing at 18% per year and shows a profit. On the dim side you may be paying over 35x cash flow for a company that’s in a notoriously fickle market.
What Does It Do?
Fluent’s secret sauce is an algorithm, built from a database of user experiences. It uses this to generate sales and other actions for its clients. These are mostly other internet companies, although Sirius XM (NASDAQ:SIRI) is also listed on its home page. The home page’s biggest endorsement comes from Scentbird, which sells perfume by subscription.
The data comes from a set of websites Fluent owns, like The Smart Wallet, which offers finance articles you’ll see inside regular news sites. Many of the sites are from Winopoly, an eight-employee shop it bought half of last year. Winopoly was founded by Luciano Rammairone, a Staten Islander who has been in the lead generation business for over 20 years, starting with the CollegeBound Network.
Bryan Shealy, who did an analysis of Fluent last year, calls Winopoly’s sites “spam web sites.” They exist to collect user data, and then flood those addresses with e-mail marketing pitches. Fluent’s job is to collect and tease out patterns from this data and use it to drive sales for its clients.
The result, even Fluent CEO Ryan Schulke acknowledged on a conference call, is that Fluent’s margins are falling. He acknowledged the falling margins even before the Winopoly deal. Hard to see that they’ve improved.
The Bottom Line
Back in the 1990s, I made a very good living covering internet commerce. This is the kind of company I warned readers about.
Collecting dicey data, converting that into “actions” that clients convert into long-running relationships, is at the bottom of the internet commerce food chain. It’s lead generation.
Fluent got a boost from investors because, with the Winopoly deal, its numbers look good. But those are short-term numbers, not long-running relationships. The stock also got a boost from pandemic fashion, business continuing with people stuck at home.
This is a stock that’s going to fall to earth. If you have a profit, take it.
At the time of publication, Dana Blankenhorn owned no shares (directly or indirectly) in any company mentioned in this story.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at email@example.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.