Bruce Buchanan is the co-founder, CEO and chairperson of Rokt. Founded in 2012, Rokt makes e-commerce smarter, faster, and better. Rokt uses real-time data and decisioning to deliver the next best action for each person in each Transaction Moment™. Rokt’s e-commerce partners experience up to 2x profitability while building customer loyalty and engagement.
The Get Latka team sat down with Bruce to learn his valuable insights on post-pandemic growth. Key highlights include:
- 273 total employees
- 3,000 customers
- $14.2m monthly revenue
Nathan Latka (00:00):
Hello, everyone. My guest today is Bruce Buchanan. He’s the Co-founder, CEO, and chairperson of Rokt. Founded in 2012, the company makes e-commerce smarter, faster, and better. Bruce, you ready to take us to the top?
Rokt CEO Bruce Buchanan (00:11):
Ready to go, Nathan.
Nathan Latka (00:12):
I’ll tell you what, you are in a hot space. E-commerce plus marketing, help us understand what you’re doing for customers.
Rokt CEO Bruce Buchanan (00:17):
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, like I said, that was one of the first direct to consumer businesses that 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 Rokt for the last eight years. Got about 3,000 clients now, mostly enterprise. We launched our Shopify app recently, but we specialize in enterprise level but the transaction moments are our key business.
Nathan Latka (01:04):
And what have you guys passed in terms of revenue at this point?
Rokt CEO Bruce Buchanan (01:07):
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. The ticketing vertical and our travel vertical is still massively affected, so we should surpass $200 million in underlying business level this year, but our actual realized revenue adjusted for what will happen with COVID in those couple of verticals are still massively impacted, would be about $170.
Nathan Latka (01:30):
Okay. So just to be clear, you think you’ll break about $14 million in December 2021 revenue, which would put you on a run rate of being $170 million?
Rokt CEO Bruce Buchanan (01:37):
We’ll do a total this year of $170 million.
Nathan Latka (01:39):
Got it. So you’ll do more than $14 million in December.
Rokt CEO Bruce Buchanan (01:42):
Yeah. Way more than 14 in December.
Nathan Latka (01:44):
And just to be clear, that’s not like GMB through your platform, right? That’s actually your margin Rokt takes, correct?
Rokt CEO Bruce Buchanan (01:51):
No, our gross profit if you will, it will be about just under $90 million.
Nathan Latka (01:58):
Nine zero.
Rokt CEO Bruce Buchanan (02:00):
It’s a slightly different way we measure it, but yeah, if you looked at it on a gross profit or gross contribution level, it’s about $90 million.
Nathan Latka (02:06):
So explain that to folks. I mean, I think what you’re building is the future of e-commerce sales. Those of you that haven’t used Rokt, it’s basically like, let’s say you go on Shopify and you check out, I’m going to make this up, a flower pot. The flower pot company at the end of the checkout process might then sell you fertilizer because the fertilizer brand pays Rokt to put the fertilizer upsell at the end of that transaction moment. And so what you are saying, Bruce, I believe is, like what is that $170 million number? Is that GMB through the platform or what does that mean?
Rokt CEO Bruce Buchanan (02:36):
It’s a little bit complicated because we’ve got product sales and advertising that gets mixed together and the SaaS revenue as well. SaaS revenue’s just gross and product revenue we book at our margin, which is typically about 3%, which goes into that gross 170 number. But advertising, we book the whole number and then our margin on that, if you look at our contribution numbers, less than that. That’s the difference between the 170 and 90 here is basically the way you treat the advertising revenue.
Nathan Latka (03:03):
What is that contribution, margin on advertising?
Rokt CEO Bruce Buchanan (03:07):
It depends on what we’re doing, but our gross contribution margin on advertising’s about 50%.
Nathan Latka (03:12):
Interesting. So am I understanding this correctly, the difference between $170 million and 90 is basically there’s 70 or 80 million bucks of advertising revenue going through your platform of which you only capture 50% of the spend?
Rokt CEO Bruce Buchanan (03:24):
That’s the amount that we pass on to our e-commerce partners, effectively the delta between those two numbers.
Nathan Latka (03:28):
Oh, I see.
Rokt CEO Bruce Buchanan (03:31):
So if you look at gross profit. So if we’re selling a product, they keep obviously around 97% of all 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 if Disney’s trying to acquire customers on our platform. They might spend X million dollars. We clear that with a thousand different e-commerce partners or whatever that is. And then the core part of our business is we made, unlike a typical advertising value ecosystem where, and this is slightly different from product to marketing, which are the other two sides of our business, but on the advertising side, we are a closed wall 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 becoming more important that we keep that very secure for our clients.
Nathan Latka (04:27):
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 Rokt technology?
Rokt CEO Bruce Buchanan (04:38):
Yeah, they’re all JVs. I mean, the way the economics work on the advertising is their contracts are like JVs where we pass 50% of the transparent relationship. We then wear all the costs which is about 43 cents on the dollar. So 50 cents go as 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 and wonderful things and we keep about 7 cents on the dollar on the net advertising side. So that’s typically how the advertising business works.
Nathan Latka (05:12):
And then in 2021, of the $90 million of gross revenue, how much of that’ll be SaaS?
Rokt CEO Bruce Buchanan (05:17):
SaaS for us is relatively small. The fastest growing part about SaaS for us will be probably, you know, around 5, 6, $7 million I think this year. The fastest-growing part of our business is product, what we call distributed commerce. We’re actually selling like parking or insurance or whatever, name a product that gets bought when you’re buying another product, and that on that product we’re taking, it’s a marketplace cut as well, it’s a straight rev share effectively. It’s like a credit card merchant fee is effectively the way that looks from a P&L perspective. So if you look at it like a PayPal or MasterCard, you’d understand how that P&L works.
Nathan Latka (05:55):
Yeah. Just to make it easy for everyone listening to follow along, if you help Disney sell a Winnie the Pooh stuffed animal through your e-commerce checkout and that stuffed animal is 10 bucks, you’ll take essentially 30 cents of the 10 bucks or about 3%.
Rokt CEO Bruce Buchanan (06:10):
Exactly. That’s exactly how it works.
Nathan Latka (06:12):
You’re not producing your own product and storing product, you’re just the cut.
Rokt CEO Bruce Buchanan (06:17):
We sell nothing. And that’s really important actually, because we want to be completely unbiased as a middle man. We connect consumers and brands and providers in a way that makes the product more effective. So if you sell insurance or whatever through Rokt and a customer’s buying an airline ticket, you’ll sell 60% more insurance because we get the right product, the right price, in front of that consumer when they’re buying. We can manage the consumer relevancy and the contextual relevancy in real time in a transaction flow to optimize against lots of different variables. But essentially your take rate on that product improves by 50, 60%. So you pay us 3%, but you sell 50 or 60% more product.
Nathan Latka (06:57):
Because you’re putting them in the right transaction moments on related products?
Rokt CEO Bruce Buchanan (07:01):
Yeah. And getting the creative right, the UX right. So some people when they buy parking want to see how close the parking garage is, some want to see the picture of the garage, some want to see a map, and so everyone’s got different buying parameters and the UX and the product and the pricing all changes dynamically to get the best outcome for the e-commerce provider.
Rokt CEO Bruce Buchanan (07:20):
And sometimes that’s their own product, by the way. That’s where the SaaS components come in. It’s much lower margin for us, but where it’s their own product or their own marketing messages, you’ve got anything on the review page or payment page or shipping page or confirmation page, could be a site, download my app or buy the baggage product on my airline ticket. You know, there can be lots of those sorts of messages as well.
Rokt CEO Bruce Buchanan (07:41):
Essentially there are three arms of the revenue stream. It’s still all the same thing, which is a 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 got a product rev share, which looks like a merchant service fee, like a credit card. And then you got an advertising revenue stream and advertising’s where we started and so it’s still the biggest, but the fastest growing is the product piece of the puzzle.
Nathan Latka (08:04):
You raised $80 million last year. What valuation were you able to raise that at?
Rokt CEO Bruce Buchanan (08:10):
We raised $80 million. It was a close round, so we didn’t go out to market and so we raised it at 450 pre-money and that was right in the middle of, it was probably a couple months where you were doing the negotiations right in the middle of COVID, which was kind of interesting because we went into COVID with about 50 or 60% of our volume centered in verticals that were basically shut down.
Nathan Latka (08:39):
Cruise lines, airlines, hotels.
Rokt CEO Bruce Buchanan (08:42):
Yeah. Entertainment, sports ticketing, they didn’t do too well. 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 and our retail vertical had been really starting to fire beforehand. And we’d been working a long time but then with the COVID hit, the retail vertical just took off. Not just natural, organic growth, but all of our BD discussions and all of these incumbents that had to rely on e-commerce, like now we really need to get our e-commerce proposition right. So our new business pipeline went crazy. We actually came out of COVID like way, way, way stronger than we went into COVID. But at the start of COVID, it was kind of scary because some of our biggest verticals went completely offline, effectively. You know, 90% decline I would say is pretty much offline.
Nathan Latka (09:37):
Can we try and capture that for a second? So you’re going to do $170 million this year. What’d you finish 2020 at?
Rokt CEO Bruce Buchanan (09:44):
We finished 2020 just shy of 100 on actual basis, but it would’ve been about 135, 140 if you’d adjusted it for COVID.
Nathan Latka (09:54):
And the margin, on a gross margin basis, gross profit?
Rokt CEO Bruce Buchanan (09:58):
It’s about 55% if you adjust it all through, something in that sort of range, you know.
Nathan Latka (10:02):
Okay, so like $65 million, $70 million.
Rokt CEO Bruce Buchanan (10:06):
About $55 million in gross profit last year, yeah. 55 of just under 100.
Nathan Latka (10:13):
Interesting. And then take me back the year before that, right. So what you finished 2019 at before COVID hit?
Rokt CEO Bruce Buchanan (10:21):
So we finished the year before without any COVID impacts and we finished right just above 100. So what was interesting was our investors, despite the COVID impact, they could see that the business was growing in an underlying basis really, 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 roller coaster, March, April, we got smashed when COVID started and our revenue tanked 65%. And then we came back with this 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.
Nathan Latka (11:11):
Yep, interesting.
Rokt CEO Bruce Buchanan (11:13):
Though it was more like a roller coaster in the middle.
Nathan Latka (11:15):
Yeah. Just repeating back to you both in 2019 and 2020, you did on a top line basis, something a little over $100 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 growth profile.
Rokt CEO Bruce Buchanan (11:31):
Yes. Yeah. I mean our underlying business was still growing strong. So we still did about 35, 40% growth in 2020 in underlying basis if you take out the COVID impacts. And this year we’ll do the same, we’ll go from that 140, 130, late $130 million to about $200 million underlying basis so you know, the growth’s still very strong and that’s why we… You can look at it at a net level and say, okay, you go from 100 to 170 in the gross, amazing, but actually that overstates this year’s growth and understates last year’s growth if you don’t adjust for it. But the underlying business tends to grow at about 40% every year and that’s pretty steady.
Nathan Latka (12:09):
How are you growing? Where are you finding new customers?
Rokt CEO Bruce Buchanan (12:13):
Lots of different areas. So some of it’s new verticals like the retail and B2B stuff that we just talked about. So they’ve been two really good successes for us. We’re also expanding geographically. So our Japanese business is starting to really take off. We’re in 16 countries now so that’s been good. We also only a few months ago launched our first SMB product, which is a Shopify app, which gives them a really slimmed down version of our product, just gives them the advertising product and the confirmation page at this time, but we’re going to roll out a few more versions of that over the next sort of six to 12 months and expand it beyond Shopify. So client type is another one, vertical geography, and product is the other one. So as we get into distribute e-commerce and we start selling more product, we go further up into the ecosystem, we start handling more of the volume of the e-commerce or more value of the e-commerce transaction through our platform we also drive more revenue.
Nathan Latka (13:03):
I was going to say, if Disney writes you a $10 million check with your advertising product or your product product, is it required they have a SaaS license as well?
Rokt CEO Bruce Buchanan (13:14):
No, no. They can pick and choose. And lots of customers use different products and expand. So we have lots of organic growth, about 40% growth, about 20% every year comes from existing customers growing into new products and just growing their footprint with us. So there’s a bit of a combination of both, but there’s no requirement. You can come in and use whatever you want. We still have a very, our philosophy commercially is play the long game, deliver lots of value, don’t try and lock in clients with complicated contracts, it just slows down the sales cycle and try and make it really easy for them to get up to speed.
Nathan Latka (13:46):
And does that 20% expansion more than make up for gross revenue churn? So your net dollar returns to over 100?
Rokt CEO Bruce Buchanan (13:53):
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 a 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 whatever product’s being sold and whatever, sort of like Google AdWords or Amazon’s 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 project basis, it’s probably about neutral, but we tend to focus on the e-commerce side which is a net negative change for us.
Nathan Latka (15:07):
You’ve got $80 million in fresh powder. Name a company you’d love to go acquire.
Rokt CEO Bruce Buchanan (15:14):
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 actually in our space. So what I’d say is if you look at the businesses that focus on the transaction moment, and we’re sort of a, you know, we’re an abstraction layer or widget or an API to rule, they are the widgets, and a way to make them smarter to get into the e-commerce environment or that transaction moment. There’s not 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 plays. They’re just not relevant because they don’t really focus on that transaction moment. They’re more [inaudible 00:16:08] just huge upside of everyone. So we’ve been looking at that and sort of S&B or other clients sorts of things and we find someone else that’s in the same space.
Nathan Latka (16:37):
Bruce, if Wunderkind files this year to IPO, do they have a good IPO or a bad IPO?
Rokt CEO Bruce Buchanan (16:48):
Sorry, I lost you there. You broke up for two seconds.
Nathan Latka (16:50):
You’re good. If BounceX or now known as Wunderkind decides to IPO this year, does it pop on launch day or do they not go so well?
Rokt CEO Bruce Buchanan (16:57):
I don’t know their business that well. It seemed to be when I looked at them a long time ago and it seemed to have changed a bit, it seemed to be a heavy consulting model and so I don’t know where it’s gone from there. And I don’t know, you know, the current markets it’d be hard to guess the way they value anything. I mean, some of the valuations are just very, very different. I mean, businesses that are somewhat have some analogies to us are businesses like Cardlytics that do a closed marketplace for banks in their apps. So, you know, looking at that sort of business and that’s done incredibly well in terms of its valuation. So we look at businesses like that. We also look at the marketing tech ecosystem, which has also got a lot of parallels with that business.
Nathan Latka (17:43):
Guys on that note, there you have it, Bruce Buchanan. Again, made it through COVID okay despite being heavily in the travel industry world going into COVID, this year, they’ll do $170 million sort of topline on a gross profit basis, something like $90 million looking at 30 to 40, maybe even more, 50% year-over-year growth. They raised $80 million last year at a $450 million valuation as they continue to scale their brand into three specific revenue lines with their product selling revenue line growing the fastest in advertising play as well and then a SaaS revenue line that makes up call it 6 to $7 million of the $90 million in gross profit. Bruce, thanks for making time for me. Thanks for coming on.
Rokt CEO Bruce Buchanan (18:21):
Thanks Nathan, great to see you again.
