[Economics] Cardlytics Continues Revenue Contraction Amid Worsening Economics

[Happy boy]

Cardlytics, Inc. beat revenue and earnings estimates, but faces declining unit economics and revenue stabilization challenges.
The AdTech market is projected to grow significantly, yet CDLX struggles with delivery inefficiencies, declining ARPU, and advertiser hesitancy, impacting its financial performance.
Recent financial trends show falling revenue, negative operating income, and high stock-based compensation, with significant cash burn and a 52.1% stock price decline over the past year.
Management's turnaround efforts may take several quarters, with increased R&D spending expected to further negatively affect operating results.
My outlook on CDLX is to sell.
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Investment Outlook
Cardlytics, Inc. (NASDAQ:CDLX) beat revenue and earnings estimates in its most recent quarterly financial results.

The company helps financial firms in the US and UK market their service offerings digitally with more targeted and profitable results.

But, unit economics have turned down and the new CEO is working just to stabilize revenue from dropping further, which will likely take several quarters to accomplish.

My view is that investment in CDLX is dead money in the near term, so my outlook is to Sell.

Cardlytics’ Market And Approach
Cardlytics operates in the advertising technology market, which was an estimated $845 billion in 2023 and is forecasted to reach nearly $3.5 trillion by the end of 2030.

If achieved, this growth would represent a very impressive 22.4% CAGR from 2024 to 2030.

Many new developments are propelling the industry, including integrated consumer journeys, connected TV, hyperpersonalization and AR/VR advertising.

Companies have increased their investment in AI-driven automation and self-serve insight capabilities.

The chart below shows the projected future growth path of the global AdTech market, by service and solution breakdown through 2030:

 

Cardlytics generates revenue from both its primary Cardlytics platform (92% LTM contribution) and its acquired Bridg platform (8%):.

Management is increasingly emphasizing its performance-based revenue model, tying revenue to client campaign success and the ability to measure outcomes.

As a result, the firm is expecting to see improved long-term retention of customers.

CDLX is also devoting resources to its Ripple media network within its Bridg system, which enables regional retailers to aggregate their data to make them more attractive to national advertisers.

My brief SWOT for Cardlytics is below:

Strengths

Data advantages, client success alignment
Weaknesses

Persistent inefficiencies with delivery, declining ARPU due to increased consumer incentives
Opportunities

Partnerships growth, engagement-based pricing models, UK growth potential
Threats

Advertiser hesitancy, competition in the card-linked offers market, advertiser churn
Recent Financial Trends
Total revenue by quarter (columns) has fallen in recent quarters due to chronic underdelivery problems. Operating income by quarter (red line) has remained heavily negative, stemming from these issues.

The degree of operating leverage has worsened in recent quarters as the company's operating losses have remained against contracting topline revenue.

 

 

Gross profit margin by quarter (blue line) has pulled back as a result underdelivery issues. Selling and G&A expenses as a percentage of total revenue by quarter (orange line) have also trended higher recently as the company seeks to retain its sales force through a rough period. R&D expenses as a function of revenue (purple line) have reached 20% in the most recent quarter, indicating increased spending to upgrade the company's technology stack and resolve issues.

(All data in the above charts is GAAP.)

For balance sheet results, CDLX ended the quarter with $67 million in cash and equivalents and $167.4 million in total debt, all of which was long-term.

Over the trailing twelve months, free cash used was $10.6 million and capital expenditures were only $1.7 million.

The company paid a hefty $42.7 million in stock-based compensation in the last four quarters, so free cash used net of SBC was a whopping $53.3 million.

SBC as a percentage of revenue over the trailing twelve-month period was a moderately high 14.5%.

The net dollar increase in stock outstanding for the last four quarters was valued at $48.6 million.

In the past 12 months, CDLX’s stock price has fallen 52.1% vs. that of the benchmark iShares Expanded Technology-Software ETF’s (IGV) rise of 41.8%, and has been much more volatile, as the chart indicates below.

 

link : Cardlytics Continues Revenue Contraction Amid Worsening Economics (NASDAQ:CDLX) | Seeking Alpha