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DD

Direct Digital Holdings, Inc. (DRCT)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue was $8.2M, down 63% year over year due to lingering sell-side disruption; buy-side grew 6% while sell-side fell 88% . Gross margin improved to 29% on mix shift to buy-side .
  • Adjusted EBITDA loss widened to $3.0M; operating expenses were reduced by 19% ($1.5M) via cost actions implemented mid-2024 .
  • Management reiterated FY 2025 revenue guidance of $90–$110M, expecting a 2H 2025 inflection as direct DSP integrations (Colossus Connections) complete and alternative pathways ramp .
  • Key call takeaways: direct DSP integrations targeted to impact Q3–Q4; buy-side expected around $40M with sell-side “north of that” to reach guidance; fixed cost reductions are sustained .
  • Stock narrative catalysts: maintained guidance despite Q1 softness; visible sell-side recovery path via direct connections and new mid-tier DSPs; continued buy-side expansion in new verticals ($1.2M in Q1; $5–$10M incremental expected in 2025) .

What Went Well and What Went Wrong

What Went Well

  • Buy-side revenue increased 6% year over year to $6.1M, supported by $1.2M from customers in new verticals .
  • Gross margin expanded to 29% from 22% a year ago due to higher buy-side mix and cost actions .
  • Operating expenses down 19% ($1.5M) year over year, reflecting fixed-cost reductions and reorganization; CFO emphasized these are ongoing fixed cost savings, not variable .
  • CEO: “With our visibility today, we maintain our revenue guidance of $90 million to $110 million for full year 2025… We expect the second half of 2025 to deliver strong gains as we experience the full effect of new direct sell side partners coming online” .

What Went Wrong

  • Consolidated revenue decreased 63% year over year to $8.2M; sell-side revenue declined 88% to $2.0M, primarily from reduced impression inventory tied to 2024 business disruption following a defamatory blog post .
  • Net loss widened to $5.9M; adjusted EBITDA loss increased to $3.0M vs $1.7M in Q1 2024 .
  • Sequential sell-side revenue of $2.0M remained well below historical levels; Q4 was $2.7M aided by ~$0.7M of political spend, highlighting ongoing headwinds despite seasonal Q4 strength .

Financial Results

Core financials (prior two quarters vs current)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$9.08 $9.08 $8.16
Gross Profit ($USD Millions)$3.51 $2.95 $2.39
Gross Margin (%)39% 32% 29%
Operating Expenses ($USD Millions)$7.17 $7.65 $6.32
Operating Income (Loss) ($USD Millions)$(3.66) $(4.70) $(3.92)
Net Income (Loss) ($USD Millions)$(6.38) $(6.57) $(5.94)
Diluted EPS ($USD)$(0.71) $(0.54) $(0.35)
Adjusted EBITDA ($USD Millions)$(2.86) $(3.40) $(3.02)

Segment revenue breakdown

Segment Revenue ($USD Millions)Q3 2024Q4 2024Q1 2025
Sell-side Advertising$2.20 $2.66 $2.03
Buy-side Advertising$6.87 $6.42 $6.13

KPIs and operational metrics

KPIQ1 2025
Avg Monthly Impressions Processed (Sell-side)~188B
Sell-side Advertisers (YoY change)+13%
Sell-side Media Properties (Avg per month)24,000; down 8% YoY; down 15% seq.; up 20% vs 2023
Buy-side Customers Served>220
Buy-side Revenue from New Verticals$1.2M

Results vs S&P Global Consensus (Q1 2025)

MetricConsensusActualSurprise
Revenue ($USD)$9.40M*$8.16M —$1.24M; bold miss
Primary EPS ($USD)$(0.01)*$(0.32)*—$0.31; bold miss

Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD)FY 2025$90–$110M $90–$110M Maintained
Buy-side incremental revenue (new verticals)FY 2025$5–$10M (expected; starting Q2) $5–$10M (reiterated; continuing into Q2) Maintained
Revenue mix commentaryFY 2025N/ABuy-side around $40M; sell-side >$40M to achieve total New detail on mix

Earnings Call Themes & Trends

TopicQ3 2024 (Prior-2)Q4 2024 (Prior-1)Q1 2025 (Current)Trend
Sell-side disruption and recoveryCustomer pause post-defamatory blog; revenues down sharply; legal action initiated; connection restored; rebuilding underway Connection resumed; sequential improvement; political spend lifted Q4; alternative pathways and direct connections emphasized Volumes not back to pre-pause; direct DSP integrations progressing; 2 leading plus mid-tier DSPs near completion; expect 2H impact Recovery path visible; ramp targeted in 2H 2025
Colossus Connections (direct DSP integrations)Launched; 2 top DSPs signed; go-live in 2025 Continued execution; alternative pathways; expect 2H 2025 impact Added several mid-tier DSPs near completion; 2H impact reiterated Building momentum
Buy-side strategy (Orange 142)Unification of buy-side; focus SMBs; emerging channels (CTV, social, retail) SMB focus; new vertical clients expected $5–$10M incremental in 2025 (full impact from Q2) >220 customers served; $1.2M new vertical spend in Q1; 6% YoY growth Stable growth; incremental revenue materializing
Cost reductions and efficiencyLeaner model; discuss staffing and discretionary reductions $2.1M QoQ savings in Q4; adjusted opex down 23% YoY Opex down 19% YoY; CFO confirms fixed cost reductions ongoing Sustained cost discipline
Legal/regulatory and Nasdaq complianceDefamation lawsuit context; marketplace trust rebuilding Court allowed case to proceed; pursuing funding/equity pathways to restore Nasdaq compliance Advancing funding/equity pathways to restore Nasdaq compliance Progressing
Data/IDs and Google ad-tech landscapeN/ACuration, data enrichment; exploring video/CTV lower CPM opportunities Cookies likely persist; alt IDs significant; monitoring potential Google ad-tech separation; business-as-usual until judicial clarity Navigating evolving ad-tech environment
AI initiativesN/AN/AReleased AI Council guides on Responsible AI and Generative AI roadmap (Q2 adoption resources) Thought leadership supports demand-gen

Management Commentary

  • CEO: “We maintain our revenue guidance of $90 million to $110 million for full year 2025… we expect the second half of 2025 to deliver strong gains as we experience the full effect of new direct sell side partners coming online.”
  • CEO: “In the first quarter, we recognized consolidated revenue of $8.2 million… buy-side segment $6.1 million, a 6% increase vs Q1 2024… first quarter sell-side revenue of $2 million was relatively consistent with Q4’s $2.7 million… Q4 is typically strongest and included $700,000 of political spend.”
  • CFO: “Operating expenses were $6.3 million, down 19%… sell-side revenue declined primarily due to decreased impression inventory; buy-side revenue increased ~6% driven by $1.2 million from new verticals.”
  • CFO (on costs): “Our operating expenses were down 19% and those costs are fixed… we cut our staff 20% back on July 1… savings will be ongoing.”

Q&A Highlights

  • Revenue mix and guidance path: Management anticipates buy-side around $40M in FY 2025 with sell-side “north of that” to reach $90–$110M . Clarifies strategy to drive top-line and margin via direct DSP connections and diversification .
  • Cost structure: Savings are fixed, not variable; 19% opex reduction seen in Q1 will continue .
  • Integration timing and market dynamics: DSP integrations vary by partner; impact anticipated in Q3–Q4; cookies likely persist near term; alternative IDs matter; monitoring any judicial-driven Google ad-tech changes .
  • Sequential sell-side trend: Q1 sell-side was “relatively comparable” to Q4 despite Q4’s political spend boost; underscores gradual rebuild .

Estimates Context

  • Q1 2025 results missed consensus: Revenue $8.16M vs $9.40M consensus; Primary EPS $(0.32) vs $(0.01) consensus. The magnitude of the miss reflects continued sell-side volume pressure as partners rebuild post-2024 disruption . Values retrieved from S&P Global.*
  • Consensus coverage is thin (two estimates), implying potential for larger post-report revisions as visibility improves through 2H integrations. Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Near-term: Expect continued muted sell-side through Q2 while integrations complete; buy-side should remain resilient with new verticals supporting growth .
  • 2H 2025 inflection: Direct DSP connections and alternative pathways are the core catalysts for sell-side revenue recovery; management explicitly targets Q3–Q4 impact .
  • Margin trajectory: Mix shift to buy-side and sustained fixed cost reductions support improving gross margin and operating leverage as volumes recover .
  • Liquidity/watch items: Cash $1.8M at quarter-end; management is advancing funding and equity pathways to restore Nasdaq compliance and support growth initiatives .
  • Guidance credibility: Reiteration of $90–$110M FY 2025 despite Q1 miss suggests conviction in 2H sell-side recovery; revenue mix detail offers clearer pathway (buy-side ~$40M; sell-side >$40M) .
  • Thematic positioning: Middle-market focus, curation/data enrichment, and AI thought leadership (Responsible AI/Generative AI guides) could aid demand generation and differentiation .
  • Risk monitor: Pace of partner integrations, demand-side market conditions, and resolution of legal/reputational overhangs remain the key variables for timing and magnitude of recovery .