The Rough Waters Continue for Cardlytics Inc (NASDAQ:CDLX) Shares

Cardlytics Inc (NASDAQ:CDLX) shares are taking a beating after reporting Q3 numbers yesterday afternoon. CDLX reported a non-GAAP loss of $(0.15), which was better than the $(0.20) loss last year. However, revenue rose just 10.1% year/year to $34.6 mln, that was below prior guidance of $36-38 mln. The Q4 revenue guidance of $43-45 mln was also below market expectations.

The press release provides little explanation as to why revenue fell shy of prior guidance. However, CDLX has contracts with a lot of banks, and sometimes the timing of those deals can be difficult to predict. Most recently, CDLX has begun rolling out Cardlytics Direct with Chase, which CDLX expects will significantly increase its FI MAU base over the next few quarters. In fact, CDLX describes the Chase deal as one of the most significant implementations in Cardlytics’ history, in terms of overall scale and complexity. So perhaps that revenue is taking longer than expected to materialize, but it’s not clear.

Cardlytics Inc (NASDAQ:CDLX) bills itself as a company that operates a purchase intelligence platform in the United States and the United Kingdom. It operates in two segments, Cardlytics Direct and Other Platform Solutions.

The company’s platform is the Cardlytics Direct solution, a proprietary native bank advertising channel that enables marketers to reach consumers through their trusted and frequently visited online and mobile banking channels. It also provides solutions that enable marketers and marketing service providers to leverage the power of purchase intelligence outside the banking channel.

Cardlytics provides a platform that helps marketers securely determine where and when consumers are spending money to help those marketers identify, reach, and influence likely buyers. The company’s insights are tied to its partnerships; it partners with more than 2,000 financial institutions to run their banking rewards programs.

The founders of CDLX are former bankers. They noticed that data from banking transactions was not being monetized properly. With this data distributed across approximately 10,000 financial institutions (FIs) in the U.S. alone, it needed to be aggregated and standardized to provide effective data for marketing. CDLX’s founders partnered with FIs and architected a platform that leverages machine learning and algorithms to analyze trillions of dollars of raw purchase data from tens of millions of accounts.

The Cardlytics Direct platform moderates fundamental problems faced by marketers. While marketers increasingly have access to data regarding the purchasing behavior of customers on their own stores and websites, they lack insight into those customers’ behaviors in other contexts as well as into the purchase behaviors of people who are not yet customers, meaning that marketers’ view of customer data is really quite incomplete.

As a result, it is difficult for businesses to focus their marketing investments on the most valuable customers. The company believes that purchase intelligence, as provided through its platform, can address these challenges comprehensively.


Picking on the New Kid

This was a rough quarter for CDLX, and investors tend to be pretty harsh with recent IPOs. So a revenue miss on just the third quarterly report for a new IPO can spook some investors. Typically, with a recent IPO, the market likes to see big revenue growth and large beats, and CDLX’s growth seems a bit more muted. It could also raise concerns about this important deal with Chase.

The stock has had a difficult time since going public. The IPO priced at $13 in February and traded above $28 as recently as mid-September, but now it’s trading around $16. While this appears to be an attractive market that has a lot of potential over the long term, CDLX seems to be having some problems.

On a final note and on a more general level, we have to wonder if CDLX may get impacted in the future as consumers start to push back on data sharing. The Facebook data sharing incident caused some backlash at Facebook. Many people may not realize their banking transactions are being aggregated and sold to marketers. There may be some pushback at some point, and consumers may demand stricter regulations.

Cardlytics Inc (NASDAQ:CDLX) has a strong balance sheet, with cash levels far exceeding current liabilities ($67.8M against $36.7M).

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