Checking Back In On Cardlytics

The fact that a great many people believe something is no guarantee of its truth.” —W. Somerset Maugham.

It has been a bit over a year since we last took a look at "Busted IPO" Cardlytics, Inc. (NASDAQ:CDLX). In that piece, we noted that the company had just recently brought in a new CEO and implemented some cost-cutting measures. The stock then behaved well until a recent selloff. Therefore, it seems a good time to revisit this small cap concern and ascertain whether new management has righted the ship. An updated analysis follows in the paragraphs below.

Company Overview:

Cardlytics, Inc. is headquartered in Atlanta, GA where it operates a proprietary native bank advertising channel. This platform enables its client to reach their customers through their network of financial institution partners through various digital channels (EX, mobile apps, email, etc.). Cardlytics also allows its clients to utilize point-of-sale data as well as to perform analytics and targeted loyalty marketing via its Bridg platform. Cardlytics purchased this data platform for $350 million in cash back in 2021.

Cardlytics, Inc. stock currently trades just under twelve bucks a share and sports an approximate market capitalization of $440 million.

Second Quarter Results:

Cardlytics, Inc. posted its second quarter numbers on August 1st. The company delivered a non-GAAP loss of 24 cents a share, which was 19 cents a share above expectations. On a GAAP basis, the company lost 67 cents a share, it should be noted. Revenues rose just under two percent to $76.7 million, more than $7 million above the consensus. Billings came in at $109.4 million compared to $107.7 million in the same period a year ago. Sales growth increased seven percent year over year in the United States but fell some 35% in the U.K. thanks to the loss of a large customer.

Adjusted EBITDA was a negative $4.1 million for the quarter, a noticeable improvement from the negative EBITDA of $15.8 million from Q2 2022. Cardlytics MAUs came in at 188.1 million. This an increase of 5% year-over-year. When we last looked at Cardlytics in September of last year, growth in MAUs was seven percent. Cardlytics Average Revenue Per User or ARPU was $0.38 for both 2Q2022 and 2Q2023. Leadership offered up the following FY2023 guidance.

The shares rose some 50% in the six weeks following second quarter numbers, but the stock has given back all of those gains since mid-September.

Analyst Commentary & Balance Sheet:

Since second quarter results were posted, JP Morgan raised its price target to $9 a share from $6 previously while maintaining its Neutral rating on the stock. Needham also boosted its price target to $19 from $10 previously while reissuing its Buy rating on CDLX, and Craig-Hallum reiterated its Hold rating on the shares.

Just over 10% of the outstanding float in the shares are currently held short. Numerous insiders have sold nearly $4 million worth of shares since late June, collectively. This includes just over $3 million by the company's CEO. Cardlytics ended the second quarter with just over $90 million of cash and marketable securities on its balance sheet after the company posted a net loss of $23.5 million for Q2. The company also has just over $225 million worth of senior convertible notes on its balance sheet as well. Net shares outstanding also increased to 37.1 million at the end of the first half of the year compared to 33.7 million at the end of the first quarter of this year.

Verdict:

Cardlytics lost $1.72 a share in FY2022 on just under $299 million in revenue. The one analyst firm that has posted projections for FY2023 has losses dropping significantly to 31 cents a share as sales rise to just south of $317 million.

There have been some improvements on the cost savings front, and the company recently added a new CFO. However, sales growth is still tepid, and the company is still losing cash quarterly. A capital raise seems a possible event in the coming quarters given Cardlytics' current burn rate, even as management believes it will be cash flow positive starting in FY2024.

Marketing spend is also likely to remain under pressure given the current uncertain economic environment. Analyst firm support is weak, and the recent insider selling in the shares is hardly encouraging. Therefore, at this time, I have no investment recommendation on Cardlytics, Inc. stock. Potential investors will get a fresh set of data points when Cardlytics reports third quarter results early in November.

The truth is not always beautiful, nor beautiful words the truth.” —Laozi.

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