SaaS Interviews with CEOs, Startups, Founders
Rokt Breaks $90m Gross Profit Coming out of Pandemic, 3 Revenue LInes, $500m+ Valuation?
22 Mar 2021
Chapter 1: What is Rokt and how does it enhance e-commerce?
Our revenue numbers this year will be about $170 million, but we also measure our underlying business. That ticketing vertical and our travel vertical are still massively affected.
So we should surpass $200 million in the underlying business level this year, but our actual realized revenue adjusted for what will happen with COVID in those couple of verticals is still massively impacted with about $170 million.
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Chapter 2: How did Bruce Buchanan's experience at Jetstar influence Rokt's creation?
Minimum is 100% over the past several years. Or bootstrap founders like Vivek of QuestionPro. When I started the company, it was not cool to raise. Or Looker CEO Frank Behan before Google acquired his company for $2.6 billion.
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My guest today is Bruce Buchanan. He's the co-founder, CEO, and chairperson of Rocked. Founded in 2012, the company makes e-commerce smarter, faster, and better. Bruce, you ready to take us to the top? Ready to go, Nathan. I tell you what, you are in a hot space. E-commerce plus marketing. Help us understand what you're doing for customers.
So I started this business eight years ago, and our objective is to make e-commerce smarter, faster, and better. Basically, I'm trying to solve a problem I had from my previous business, which was Jetstar, a low-cost airline in Asia Pacific, which I built over 10 years to be the largest low-fares airline.
And one of the problems we discovered, low-cost airlines are one of the first direct-to-consumer businesses, but we discovered the importance of this moment in time where consumers were transacting, which we call the transaction moment. And if we could get the right products and the right messages in front of our customers, we could double the profitability of the airline.
And that's the problem we've been trying to solve at Rock for the last eight years. We have about 3,000 clients now, mostly enterprise. We launched our Shopify app recently, but we specialize in enterprise level, but the transaction moment's our key business.
And what have you guys passed in terms of revenue at this point?
So we measure that in two ways because of COVID. Our revenue numbers this year will be about 170 million, but we also measure our underlying business. That ticketing vertical and our travel vertical are still massively affected.
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Chapter 3: What revenue numbers is Rokt projecting for this year?
It depends on what we're doing, but our gross contribution margin on advertising is about 50%.
Interesting. So am I understanding this correctly? The difference between $170 million and $90 million is basically there's $70 or $80 million of advertising revenue going through your platform, of which you only capture 50% of the spend?
That's the amount that we pass on to our e-commerce partners, effectively the delta between those two numbers. So if you look at gross profit, so if we're selling product, they keep obviously... around 97% of all of the revenue. And so we don't book the gross product sales, but when we're talking about advertising, we book the gross revenue and we clear the transaction. So Disney's trying to,
acquire customers on our platform, they might spend X million dollars. We clear that with, you know, a thousand different e-commerce partners or whatever that out of players.
And then, you know, the core part of our business is we made, unlike a typical advertising value ecosystem where, and this is slightly different from product and marketing, which is the other two sides of our business, but on the advertising side, We are a closed-world garden, similar to like a Google.
And so we clear everything and we deal directly with the advertiser, directly with the e-commerce company, primarily because we're dealing with sensitive data. And in the last few years, that's only become even more important that we keep that very secure for our clients.
So since you own the marketplace, if Disney pays you $10 million and they say, go put it through your platform, you'll basically effectively spend $5 million through the platform on ads, keep $5 million as revenue for using the Rockstar technology.
Yeah, they're all JVs. I mean, the way the economics work on the advertising is their contracts like JVs where we pass 50% of the transparent relationship. We then wear all the costs, which is about 43 cents in a dollar. So 50 cents goes a partner. They see exactly what's happening. We're very transparent.
We spend about 43 cents on technology and hosting and sales and commission and management of the platform and data costs and all sorts of weird, wonderful things. And we keep about 7 cents on the dollar on the, on the net advertising side. So it's typically how the advertising business works.
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Chapter 4: How has COVID impacted Rokt's business and revenue streams?
And getting the creative right, the UX right. So, you know, some people, when they buy parking, want to see how close the parking garage is. Some want to see. Uh, the picture of the garage, I'm going to see a map, you know, and so everyone's got different buying parameters in the UX and the product and the pricing all changes dynamically to get the best outcome for the e-commerce provider.
And sometimes that's their own product, by the way, that's where the SAS components come in. It's much lower margin for us, but where it's their own product or their own marketing messages, you know, you've got anything on the review page or payment page or shipping page or confirmation page could be. you know, download my app or, you know, buy the baggage product on my airline ticket.
You know, there can be lots of those sorts of messages as well. But yeah, essentially there are three arms of the revenue stream. It's still all the same thing, which is the transaction moment. It's all about optimizing the actions and experiences, but you've got a SaaS revenue stream, which is the internal stuff.
You've got a product rev share, which looks like a merchant service fee, like a credit card. And then you've got a, an advertising revenue stream and advertising is where we started. And so it's still the biggest, but the fastest growing as a product piece of the puzzle.
You raised $80 million last year. What valuation were you able to raise that at?
We raised, uh, $80 million. It was a close round, so we didn't go out to market. Um, and so we raised it at four 50, uh, pre money. Um, and. uh, you know, that was right in the middle of, it was probably a couple of months where you were doing the negotiations right in the middle of COVID, which was kind of interesting.
So we went into COVID with, uh, with about 50 or 60% of our volume centered in, in verticals that were, uh, basically shut down.
Cruise lines, airlines, hotels.
Yeah. You know, entertainment, sports ticketing. They didn't do too well cinemas. Yeah. So our whole ticketing and entertainment vertical dropped 97%. Our travel vertical dropped about 60 or 70%. So they just got really badly hit. And the great thing was we bought a business the year before in B2B, which is a company called OfferLogic, which we created our B2B vertical.
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Chapter 5: What are the three main revenue lines for Rokt?
It's about 55% if you adjust it all through or something in that sort of range.
Okay, so like 65 million, 70 million.
About $55 million in gross profit last year. $55 million just after $100 million.
Interesting. And then take me back the year before that, right? So when you finished 2019 at before COVID hit.
So we finished the year before without any COVID impacts and we finished right just above $100 million. So what was interesting was our investors... Despite the COVID impact, they could see that the business was growing in an underlying basis really fast. And so the valuation lifted, I think about 65% over about nine months. And that wasn't because our actual results were lifting that way.
They could just see the underlying business getting stronger and stronger and stronger. So actual revenue remained pretty flat. I mean, it looks flat, but actually it wasn't flat really. It was like a rollercoaster. March, April, we got smashed when COVID started. And our revenue tanked 65%. And then we came back with this, you know, retail and all these other businesses really were growing fast.
And so we finished the year really strong. But if you look at the annual results year on year, it looks relatively flat. But it was more like a roller coaster in the middle.
Yeah. Just repeating back to you both in 2019 and 2020, you did on a top line basis, something a little over a hundred million of which you made about 55 to 60 million in gross profit. Now the revenue mix was different because of COVID impacts, but this year you'll return to a growth profile. Yes.
Yeah. I mean, our underlying business is still growing strong. So we still did about 35, 40% growth in 2020 and underlying basis. You know, if you take out the COVID impacts and this year we'll do the same, you know, we'll go from that one 140, 130, late 130, 140 million to about 200 million on an underlying basis. The growth's still very strong.
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Chapter 6: How does Rokt measure gross profit and revenue differently?
It depends which way you look at it. But on the way that we find is most important is our e-commerce clients. So what we call the supply side of our business. So when we're powering those actual transaction side. Our revenue churn on a gross level for those is low single digits. So we are net negative churn, if you will, on our e-commerce clients.
But on our advertising or product sale clients, it's a bit more fickle. Like, you know, whatever product's being sold and whatever, you know, sort of like Google AdWords or Amazon sponsored product listings, people are coming in and out with different deals all the time. And so the movement in that marketplace month to month looks quite high.
On an annual or biannual basis, it's fairly steady, but you get a lot of movement by different seasons and months and that sort of stuff. But we don't tend to think of that as churn, and it's more the marketplace dynamics of who wants to acquire more customers this month and who's trying to launch a new product and who's got a big push into...
It's probably about neutral, but we tend to focus on the e-commerce side, which is a negative change for us.
You've got 80 million in fresh powder. Name a company you'd love to go acquire.
I don't think I'd say it here. I mean, you can look at the pattern that we've done before. There's not too many businesses that are actually in our space.
So, you know, what I'd say is if you look at the business as a focus on the transaction moment, and we're sort of a, you know, we're an abstraction layer or a widget or an API to rule all the other widgets, you know, in a way to make them smarter to get into the e-commerce mode, into the e-commerce environment or that transaction moment. a lot of other companies that specialize in that space.
And there's no one really working in that area. So we have to really hunt hard to find businesses that are relevant to what we do. So for instance, we've looked at all the optimization players. They're just not relevant because they don't really focus on that transaction moment. They're more up and drives huge upside for everyone.
So we look at that, you know, in terms of SMB or other clients and those sorts of things. and we find someone else that's in the same space.
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