Cardlytics ($CDLX): Q4 2023 Earnings (Research Note #239)

AmEx details and numbers, reason for the $50M ATM stock offering, 2025 converts, other new banks, ADE, large advertisers, receipt-level offers, Rippl growth, financial results and guidance, and more.

CDLX’s Q4 earnings was last Thursday, on March 14, 2024.

In this CDLX Research Note, I will be going into details on many different items from the call and the new 10-K.

The largest portion of this post is dedicated to the signing of American Express, given how significant this is for CDLX (more so than most realize).

In total, I’ll be discussing:

1. American Express

   1. “Travel Related Services”

   2. Different Billings / Revenue Share with AmEx

   3. Incremental OpEx

   4. Benefits of Combined Scale

   5. Impact of Signing AmEx (with numbers)

   6. Scaling AmEx

   7. Timing of AmEx Going Live

2. Additional MAU Growth and Future Banks

3. New Ad Server and New User Experience

4. Insights and Dashboard

5. Return of Large Advertisers

6. Receipt-Level Offers

7. New Entry Points and Alerts

8. Bridg and Rippl

9. Differentiation Among Banks

10. Q4 Financial Results

11. Q1 and FY Guidance

12. Shares Outstanding and $50M ATM Stock Offering

    1. Why CDLX Issued Stock Right After Earnings

13. Line of Credit

14. 2025 Converts

15. Summary by CDLX

Enjoy!

0. Introduction

The signing of AmEx is one of the largest things to occur for CDLX in a very long time.

CDLX will benefit from current AmEx advertisers continuing to place offers on AmEx + now on other CDLX banks as well, and also getting current CDLX advertisers to place offers on AmEx.

AmEx is also a large catalyst for additional growth. The increased scale and data will benefit existing advertisers and attract new advertisers, which in turn will likely lead to additional banks joining to take advantage of CDLX’s improved offering (combined with the signal this sends to other banks, where even with AmEx’s robust in-house offers system they still switched to CDLX, and how more banks continue to trust CDLX).

AmEx has the potential to provide substantial benefit to CDLX, even in the near term. Given this partnership doesn’t appear to have revenue share, the addition of AmEx will lead to very large incremental adjusted contribution with little to no incremental OpEx, leading to significant cash flow in relation to CDLX’s market cap today (and where CDLX’s large NOLs can offset taxable income). And this could start occurring as soon as AmEx goes live, from just CDLX taking over the spend by existing AmEx merchants spending on AmEx and earning a spread (either through a surcharge, or from decreasing cash back but improving targeting to lead to similar or even higher returns).

The increase in earnings for CDLX will also benefit the banks, advertisers, and users, given it allows CDLX to continue to invest and improve their offerings even more.

To sign AmEx, it appears CDLX had to first settle with Bridg / SRS in order to remove the uncertainty of the dispute and increase liquidity (given an unfavorable ruling could have been much worse + it allowed CDLX to increase their line of credit capacity and therefore their liquidity) + raise additional liquidity via the $50M ATM stock offering (where it is likely AmEx required this for them to partner, to increase liquidity further and be able to handle the converts, hence why CDLX had to raise right after earnings, given it was tied to the agreement with AmEx).

Altogether, CDLX will now be able to handle the 2025 converts (between current net cash after the Bridg earnout + $50M offering + increased LOC capacity that can be used with AmEx future accounts receivable + AmEx near-term revenue with no rev share and where the incremental profit has little to no taxes from using CDLX’s NOLs). So CDLX accepted some dilution given the far outsized benefits of signing AmEx (while also substantially removing the downside for AmEx switching to CDLX and for investors by handing the Bridg dispute and the converts).

The question is then can CDLX execute on the advertiser side to make the most of AmEx and the other banking relationships. The answer seems to be yes, between them being able to get large advertisers to return (Starbucks, Target, Chipotle, Arby’s, Subway, etc.) and others to join (Lululemon, Taco Bell, etc.). Additionally, while these advertisers have so far only been ran in a limited capacity in Q1 (only on Chase + only ran for a part of Q1), CDLX was still able to show acceleration in growth in Q1 guidance, and where we will likely see further growth in Q2 and the full year (even ignoring AmEx).

CDLX appears to be executing on all fronts, doing exactly as they said + addressing all needs (including the new advertiser dashboard, which should lead to further increases in ad spend).

This will likely become more apparent as it starts flowing through their reported numbers soon.

Overall, signing AmEx was a major step change for CDLX.

The rest of this Research Note goes into detail on many of these idea, including numbers related to AmEx.

1. American Express

The big announcement this quarter was the new partnership with American Express.

On March 14, 2024, Cardlytics entered into an agreement with American Express Travel Related Services Company, Inc. (“AXP”):

In this subsection I will be discussing:

1. “Travel Related Services”

2. Different Billings / Revenue Share with AmEx

3. Incremental OpEx

4. Benefits of Combined Scale

5. Impact of Signing AmEx (with numbers)

6. Scaling AmEx

7. Timing of AmEx Going Live