Cardlytics ($CDLX): Q2 Initial Notes and Thoughts (Research Note #269)

First notes and thoughts on Q2 earnings and the CEO change, including information from after the call.

I thought it might be helpful to provide some initial notes and thoughts regarding Q2 earnings + the CEO change, and then send out the more detailed analysis on Q2 later.

This CDLX Research Note includes the following topics:

1. New Investment Prospects

2. AmEx

3. Karim Temsamani Stepping Down as CEO

4. Amit Gupta as New CEO

5. Q2 Results and Delivery / Forecast Issues

6. Dynamics Marketplace and Engagement-Based Pricing Model

7. Q3 Guidance

8. FY 2024 and 2025 Guidance

9. New Banks

10. Rev Share Changes

11. Chase Media Solutions

12. MAUs

13. Automated Insights Dashboard

14. Rippl and CPG Spend

15. Convertible Notes and LOC

16. Operating Expenses

Enjoy.

Q2 Initial Notes and Thoughts

1. New Investment Prospects

   1. Risk / Reward: To put the Q2 notes below into some context, I do think that following the 50%+ stock decline that CDLX has an attractive risk / reward profile.

   2. Upside: If existing banks stay + if AmEx still joins + if CDLX fixes this delivery issue, then CDLX should produce substantial cash flows (especially given the significant NOLs to offset taxable income) in relation to the now-lower market cap. Additional core billings growth + further decreases in rev share + more US banks + international growth + Rippl are all just further upside, but not needed, and I ignore for valuation purposes.

   3. Downside: The risk profile would be very different if CDLX did not already address their capital structure and debt earlier this year, which now gives them time and breathing room, and decreases the risk for equity investors. However, some risks / concerns still remain (as I’ll discuss). Therefore, there must be consideration to the position size, not only due to opportunity cost, but also given these downside risks.

   4. Note: Since originally writing this and adding back to CDLX below $3 yesterday (after previously decreasing my allocation for reasons discussed in the Q2 Pre-Earnings Analysis post), the stock closed 27.7% higher today. However, the discount to a conservatively-calculated future value is still very significant (as long as AmEx materializes as expected), so an attractive risk / reward profile is still very much present.

2. AmEx