Direct Digital Holdings, Inc. Class A ((DRCT)) has held its Q4 earnings call. Read on for the main highlights of the call.
Direct Digital Holdings, Inc. Class A recently held its earnings call, reflecting a challenging year marked by significant revenue declines. The company faced external attacks and customer pauses, impacting its financial performance. Despite these setbacks, strategic initiatives were undertaken to improve margins, reduce costs, and explore new revenue-generating activities. The outlook for 2025 suggests potential recovery, with expected gains in the latter half of the year.
Gross Margin Improvement
Despite a decrease in revenue, Direct Digital Holdings reported an increase in gross margin from 23% in the prior year to 32% in the fourth quarter of 2024. This improvement was attributed to a higher mix of buy-side revenue, showcasing the company’s strategic focus on enhancing profitability.
Cost Savings Achieved
The company successfully realized cost savings in operating expenses amounting to $2.1 million in the fourth quarter of 2024. This achievement underscores the flexibility in Direct Digital Holdings’ cost structure and its commitment to financial efficiency.
New Revenue Initiatives
Direct Digital Holdings launched Colossus Connections, aimed at accelerating direct integration with leading demand-side platforms. This initiative has already signed up two leading partners and is expected to generate an additional $5 million to $10 million in revenue in 2025.
Positive Buy-Side Customer Growth
Despite an overall decline in buy-side revenue, the company experienced an 8% growth from existing and new customers. This positive trend highlights the resilience and potential for future growth within the buy-side segment.
Significant Revenue Decline
The fourth quarter of 2024 saw a revenue decline to $9.1 million, a significant drop from $41 million in the same period of 2023. This decline was primarily due to external challenges and customer pauses, impacting the company’s financial performance.
Sell-Side Revenue Impacted
Sell-side revenue fell to $2.7 million in the fourth quarter, compared to $33.4 million in the same period of 2023. This decrease was largely due to a major customer pausing its connection following a defamatory article, highlighting the challenges faced by the company.
Operating Loss
Direct Digital Holdings reported an operating loss of $4.3 million for the fourth quarter, an improvement from the $8.8 million loss in the same period of 2023. This reduction in operating loss reflects the company’s efforts to manage costs effectively.
Decrease in Cash Reserves
The company’s year-end cash and cash equivalents decreased to $1.4 million from $5.1 million at the end of 2023. This decrease in cash reserves underscores the financial challenges faced during the year.
Forward-Looking Guidance
Direct Digital Holdings reiterated its revenue guidance for fiscal 2025, projecting between $90 million and $110 million. Despite the challenges of 2024, the company remains optimistic about the latter half of 2025, expecting strong gains driven by new direct sell-side partners and a focus on higher-margin buy-side operations. The management anticipates incremental revenue of $5 million to $10 million from new verticals, signaling a strategic focus on growth and recovery.
In summary, Direct Digital Holdings, Inc. Class A’s earnings call highlighted a year of challenges and strategic responses. While the company faced significant revenue declines, efforts to improve margins, reduce costs, and explore new revenue streams were evident. The outlook for 2025 is cautiously optimistic, with expectations of recovery and growth in the latter half of the year.