Direct Digital Holdings, Inc. Q4 FY2023 earnings call

Management Statement and Operational Highlights

• 2023 Achievements: Announced collaboration with Amazon Publisher Services, partnership with HPE GreenLake, 7% growth in client portfolio, 10% increase in revenue per customer, transition to cookie-less environment, launched AI yield management tool, and transitioned shared services.
• Q4 2023 Insights: Q4 2023 revenue was $41 million, 33% higher YOY but down sequentially from Q3. Factors included lower demand, delay in Tier 1 publisher beta release, and proactive cookie-less transition. Strategic publishers beta-tested in Q4 launched in Q1 2024.
• 2024 Outlook: Middle market digital ad tech remains fragmented; cookie deprecation to drive consolidation; AI and alternative IDs to shape market; aim to build strategic relationships; AI tools to enhance ROI.

Segment Performance

• Sell-side advertising segment: In Q4 2023, revenue was $33.4 million, a 41% increase compared to $23.6 million in the same period of 2022. For the full year 2023, it achieved $122.4 million in revenue, representing a 104% growth from $60 million in 2022.
• Buy-side businesses (Orange142 and Huddled Masses): Q4 2023 revenue was $7.6 million, a 7% increase from $7.1 million in Q4 2022. For the full year 2023, buy-side revenue was $34.7 million, an 18% growth from $29.3 million in 2022.

Guidance

• 2024 Revenue Guidance: $170 million to $190 million, a 50% increase from 2023 at midpoint. Preliminary results for Q1 2024 show sell-side revenue on pace for 10%-20% growth YOY.

Risks

• Cookie Deprecation: Impact on campaign performance reporting and delivery; market consolidation and transition challenges.
• Market Fragmentation: Continued bifurcation in marketplace between alternative ID, open CPM marketplaces, and wall guards; tension between DSP and SSP relationships.

Question and Answer

Q: Impact of Q4 factors on guidance and 2024 changes A: Mark Walker discussed that cookie deprecation transition and delayed Tier 1 publisher beta impacted Q4. In 2024, publishers launched from beta and alternative ID transition are driving growth.

Q: Cadence of growth and new initiatives A: Mark Walker mentioned new initiatives like SHE Media and FreeWheel will impact Q2/Q3. Diana Diaz noted margin mix depends on sell-side vs buy-side.

Q: Cookie deprecation impact on market and publishers A: Mark Walker said cookie deprecation is driving innovation, with larger publishers ahead and mid-tier needing catch-up. Michael Kupinski asked about ROI and publisher readiness, to which Mark responded on workarounds and publisher tiers.