Free post discussing Q2 results, improved liquidity position, free cash flow positive, new user experience, new potential banks, new offer constructs, new hires, lower billing share, and more.
Aug 11, 2023·edited Aug 11, 2023Liked by Austin Swanson
Hi Austin, great writeup as usual. I just had a few questions:
1. When do you feel ARPU for this business will really start to take off (assuming this is the main driver of the biz)? 2Q23 ARPU was $0.38, which annualized is $1.52. Do you see this metric improving significantly in 3Q/4Q23 or is this more of a 1H24 story?
2. Regarding cash flow, does the business need a lot of capex to scale effectively? Or does positive operating cash flow go straight down into free cash flow when the platform gets bigger and ARPU ramps up?
3. Regarding the loss of the UK banking partner in 2Q23 (UK rev down 35% while US rev +7%), is this one-time in nature and what in your view caused this? Is this likely to be non-material going forward (and potentially sets up for very easy base compares in 2Q24)?
4. When do you expect the company to possibly provide an update on Cliff's request for a board seat(s)?
1. It could be more so in 2024. The area where I see the largest unlocking is from adding receipt-level data and product-level offers, where brands / CPGs / department-level budgets have not yet been able to use CDLX before this. So once this starts rolling out more, it should add to revenue meaningfully. This has only started to rollout, with likely most testing through the last few months of 2023, and will take some time to scale up through 2024. Other areas like the new user experience, new dynamic marketplace and bidding, and other new offer constructs should help ARPU, but again, all of this is so new, that it might some time to see the benefits. We actually could see ARPU decrease in the short term if revenue stays relatively flat and if CDLX adding another large bank (since ARPU = revenue / MAUs).
2. OpEx and delivery costs should remain relatively fixed to support significantly more growth (but could see Karim hire beyond that to develop and support and even beyond today’s capacity). This will lead to the incremental gross profit dropping to the bottom line (and where CDLX has large NOLs to offset taxes). CapEx is next to nothing in this business, but along those lines there are some software development costs (as seen in the Investing Activities in the CF statement). I would think that would also stay relatively flat, or at least not grow proportional to large increases in revenue, but we will see.
Hi Austin, great writeup as usual. I just had a few questions:
1. When do you feel ARPU for this business will really start to take off (assuming this is the main driver of the biz)? 2Q23 ARPU was $0.38, which annualized is $1.52. Do you see this metric improving significantly in 3Q/4Q23 or is this more of a 1H24 story?
2. Regarding cash flow, does the business need a lot of capex to scale effectively? Or does positive operating cash flow go straight down into free cash flow when the platform gets bigger and ARPU ramps up?
3. Regarding the loss of the UK banking partner in 2Q23 (UK rev down 35% while US rev +7%), is this one-time in nature and what in your view caused this? Is this likely to be non-material going forward (and potentially sets up for very easy base compares in 2Q24)?
4. When do you expect the company to possibly provide an update on Cliff's request for a board seat(s)?
Thanks again!
1. It could be more so in 2024. The area where I see the largest unlocking is from adding receipt-level data and product-level offers, where brands / CPGs / department-level budgets have not yet been able to use CDLX before this. So once this starts rolling out more, it should add to revenue meaningfully. This has only started to rollout, with likely most testing through the last few months of 2023, and will take some time to scale up through 2024. Other areas like the new user experience, new dynamic marketplace and bidding, and other new offer constructs should help ARPU, but again, all of this is so new, that it might some time to see the benefits. We actually could see ARPU decrease in the short term if revenue stays relatively flat and if CDLX adding another large bank (since ARPU = revenue / MAUs).
2. OpEx and delivery costs should remain relatively fixed to support significantly more growth (but could see Karim hire beyond that to develop and support and even beyond today’s capacity). This will lead to the incremental gross profit dropping to the bottom line (and where CDLX has large NOLs to offset taxes). CapEx is next to nothing in this business, but along those lines there are some software development costs (as seen in the Investing Activities in the CF statement). I would think that would also stay relatively flat, or at least not grow proportional to large increases in revenue, but we will see.
3. I discussed the potential causes and additional info regarding the UK Bank in the following Research Note from last quarter, in items #7, #8 and #16: https://swany407.substack.com/p/cdlx-research-notes-updates-174-176. Shouldn’t be too material going forward.
4. Not sure when we will get an update. It might have to go to a vote.