Cardlytics ($CDLX): Self-Service for Banks
Discussions on the benefits of the new self-service for banks, and why Chase may already be using it and have the new ad server. Plus some predictions on Q4 earnings announcements (new bank and more)
For all my notes on CDLX, check out my Qualitative and Quantitative “Research Notes”:
For more general information on Research Notes, see here.
For those interested, this post is also available on YouTube, Apple Podcasts, and Spotify.
Market Cap as of 3.1.2022: $58/Share x 33.1M Shares ~ $1.9B Market Cap.
General Reflection
I’ve never been this excited about a company before. This is likely due to the business improving at the same time its stock price is declining. Additionally, there are many possible short-term catalysts to close that gap (such as those that will be discussed in this post).
Sometimes I worry I might be blinded by my own enthusiasm. However, I feel that my optimism is coming at a time of overall near-maximum pessimism with the company. Nearly every expert call and message I get is regarding concerns and risks, with more asking “what can go right?” rather than “what can go wrong?” Combined that with a significantly depressed stock price, I at least feel that the risk of me getting caught up in some form of greed or excitement of others is extremely minimal.
I think I would be more concerned regarding being blindly optimistic if the situations were reversed, and I was hearing nothing but positive expectations with the company and if the market price was at all-time highs. It could be easy to get caught up in the fun in a situation like that. Given that is not the case, I think my enthusiasm is more a function of the many positive developments occurring with the underlying business at the very same time the price declines.
With that said, I fully recognize anything could happen, including the unexpected. For all I know, some extremely negative news will be announced at earnings today. However, I like to base my expectations around the developments and hints / clues that I am seeing, such as what will be discussed in this post.
I hope you enjoy.
Introduction
(3.2.2022 Reflection Post Earnings: If you are reading this on 3/2/2022 or after, I recommend focusing on the section “Benefits of the New Self-Service for Banks” that is at the middle of this post. This is the most important section.)
One of the most underdiscussed and underappreciated areas currently related to Cardlytics is the new self-service for banks.
It is also possible it is already being tested by Chase, or already in their hands. I am not positive with what will be announced today during Q4 earnings, but given the number of clues related to Chase possibly already having the new self-service for banks and the new ad server, these could be discussed. I have also included a long list of other predictions of what could be announced at today’s earnings at the end of this post.
Below are a couple of pictures that include summaries of this post with detail, for those looking to save time or easily share the information. These notes come from my Cardlytics Research Notes. While adding these to my notes, I started realizing how many different things fit together like a puzzle, leading to some higher probability conclusions that will be discussed in this post. I will discuss the points in the pictures below (and some additional points and thoughts) in detail in the full post that follows.
CDLX Mentioning Self-Service for Banks
One of the first mentions (that I am aware) of the new bank self-service feature (that I've heard from others is named "Engage", which is quite fitting if true) was during Cardlytics’ investor day:
During the December 2021 conference, Cardlytics discussed the new self-service for banks that they said would allow for more customization:
Importantly it is said, "they can do some of the things we've been doing for Chase for the last 2 years, so any bank can do that, but they can do it themselves".
Clues Chase is Using the New Self-Service for Banks
The one thing that I am aware of that Chase has done differently, that could therefore be related to the comments above from December, are the Chase Sapphire Reserve Exclusive offers. These types of offers would also allow for more of the customization that was mentioned, since the offers would be exclusive to each bank, leading to more differentiation among the banks and their cards. Therefore, as more banks get the self-service for banks, we could start seeing more of these exclusive offers.
These have been significantly higher in amount, which I believe is due to Chase boosting / contributing to the consumer incentive. This is an act by banks that was mentioned in general by Cardlytics, such as in Q3 earnings, saying, “…we've talked a little bit about certain banks who use some of their FI share in certain periods to fund richer reward and increases the consumer incentive…”.
Where this relates to me believing that Chase already has the new self-service for banks is based on their offers. Starting Q4 2021 (October 1st to be exact), we saw an increase in Chase Sapphire Reserve Exclusive offers. Before, it was usually only the Kwiat $1000 offer. But then, two more were added:
Allbirds: $50 (timing coincided with IPO)
Mr. Porter: $200
Since then, there have been four more Chase Sapphire Reserve Exclusive offers (order matches screenshot when starting up top, going left to right, then bottom row left to right):
The Collective: $1000
Away $200
Fred Leighton: $1000
Aura Air: $200
Summary of Reasons Why Chase Could Already Have the New Self-Service for Banks
It's possible Cardlytics is still helping Chase with pushing out these offers, but...
Given the sudden dramatic increase in number of Chase Sapphire Reserve Exclusive offers
+ Comment regarding self-service for banks (i.e., knowing self-service for banks is a thing, and that it helps do more of these exclusive offers)
+ Chase being the one bank that has already been doing these types of offers...
it would make sense they would be the first to get it, or at least test it.
Clues Chase is on the New Ad Server
Where things get even more exciting is in the December conference, it was said when discussing the self-service for banks that "this new ads server...also opens the ability for you, bank, to customize your program...basically self-service for banks"
This makes it seem that the only way to get or use the new self-service for banks is if you take the new ad server.
Could it be Chase has already adopted the new ad server?!
Clue #1: Self-Service for Banks Requires Adopting the New Ad Server
We already discussed why Chase may already have the new self-service for banks. Therefore, since they would first need to adopt the new ad server (similar to the BofA negotiations), if it is true they have the self-service for banks (which is not confirmed) then they would also have the new ad server.
Additional Clues Chase Adopted New Ad Server
Before making the connection regarding self-service for banks requiring the new ad server, I actually already thought Chase adopted the new ad server (as discussed in my Quantitative Research Notes, or as of the time of this write-up, the exact section can be found here for paid subscribers) and have anticipated this as a Q4 earnings announcement.
Therefore, it seems there may be many clues that Chase has already adopted it.
Clue #2: Investor Day Comments Explicitly Mentioned Chase Adopting the New Ad Server by Year-End 2021
After relistening to portions of the Cardlytics investor day, I realized for the first time that Chase potentially taking the new ad server by the end of 2021 was not mentioned just once, but twice. Therefore, I don’t think it was a mistake.
Specifically, Michael Akkerman mentioned U.S. Bank rolled out the new ad server and user experience, Nectar with open banking has also adopted it, and one of their large banks committed to moving to the new ads server by the end of that year (2021) and where Farrell would talk about later.
Later Farrell Hudzik said, "Chase is also, as Michael mentioned, on track to take the new Cardlytics ad server and UI by the end of the year, which will continue their engagement growth trajectory."
(Detail can be found in the Qualitative Research Notes, or as of the time of this write-up, the exact section can be found here for paid subscribers)
Clue #3: Explains MAU Goal
In January 2022, Lynne stated again the goal regarding getting more MAUs on the new ad server.
This could be why Cardlytics had the goal of 50% of MAUs by the end of 2022, breaking up the goal in two years, knowing they would be getting large portion from Chase right away.
Additionally, the comment, “Every single bank is on their own path to adopting the new ad server”, shows that Chase also must be on its own path. I just wonder if that path is ahead of everyone else, where they are already on the new ad server.
Finally, I’ve heard from others that when asking management how they will hit that goal of 50% of MAUs by end of 2022, Chase was mentioned specifically as one of the banks that could help achieve that.
Clue #4: Possible Testing Before Future Product-Level Offers
Given Target now is advertising in Chase, it could be product-level offers are starting soon, where the new ad server is needed first.
The reason being I wouldn’t think we would see someone like Target ever place an offer without product-level offers, so maybe they know it is coming soon and are testing offers in general.
Best Buy and Kroger looked to also ramp up offers in Q4 and were seen in Chase.
As a reminder, product-level offer testing went live at U.S. Bank. Therefore we know this is possible on the new ad server even today. So if Chase is on the new ad server, they could get product-level offers soon. If we didn’t have this piece of information, we could think it could be a while until product-levels are possible, making these offers not very relevant. However, knowing product-level offers are in fact possible now on the new ad server, it could be why these companies are doing more testing.
For a product-level offers update, see the following write-up.
For detail on Bridg, see the following write-up.
Clue #5: Possible Premium Placement (Like U.S. Bank, who is on the New Ad Server)
I have noticed a few offers that are always in the entry offers (the first three you see before seeing all the offers), such as ESPN (since their logo used stands out to me).
While this may be a coincidence, and maybe seems like nothing even if it’s not a coincidence, U.S. Bank, who is on the new ad server, always shows the same first offers in the same order.
This may be a function of the new ad sever, possibly related to premium paid placement. Therefore, this similarity may show Chase is also on the new ad server.
However, it could just be random, or a function of me having less non-activated offers, increasing the odds of seeing repeated offers in the entry offers and ESPN’s logo simply sticking out to me.
Clue #6: An Ad Agency Thought a New Bank Was Signed by CDLX. Maybe Instead It’s a Large Increase in SKU Reach.
I added to my Quantitative Research Notes on thoughts before Q4 earnings that we could hear a new bank partner signed (still possible). The reason for this was there was a rumor from one of the ad agencies (I believe Horizon Media) that they thought Cardlytics signed a big bank in Q4, with their guess being Capital One.
I have pretty much dismissed that. However, I kept thinking, why say that or think that unless there was a reason? It could be instead that a new bank wasn’t signed, but the advertising reach via MAUs that could now receive product-level offers increased significantly, such as from a bank adopting the new ad server. Therefore, it is possible this is due to Chase adopting the new ad server. This would also explain why the ad agencies, with a large number of brand and CPG clients, would get a hint of this! They have already mentioned that they have many more clients that have not yet been able to use Cardlytics due to no product-level offers. Many of these clients could then start advertising, and in larger amounts, if Chase adopted the new ad server.
This would solve another piece of the puzzle, by also explaining the following December comment:
If Cardlytics added Chase to the new ad server at the beginning of the year (i.e., Chase already adopted it), advertisers would have a full year to place more advertisements, including using product-level offers.
An additional puzzle piece that fits (increasing the odds of this occurring dramatically) is the “Q4” comment by Horizon Media. The timing of them thinking a big bank was signed in Q4 would match the timing of an increase in Chase Sapphire Reserve Exclusive Offers and also the potential clues of future product-level offers. The Allbirds and Mr. Porter offer were on October 1st I believe (so Q4), and the other offers came after. The Target offer (indicating future potential of product-level offers) went live around December. Best Buy and Kroger looked to also ramp up offers in Q4 (but could be a coincidence, but I would think both would wait more for product-level offers, like Target). To top it off, we have the investor day comment of “Chase is also, as Michael mentioned, on track to take the new Cardlytics ad server and UI by the end of the year.” Altogether, the timing of Chase adopting the new ad server in Q4 would make sense and fits.
Summary of Clues + Benefits of New Ad Server
Combining those 6 clues make it seem like there is at least a decent chance Chase has already adopted the new ad server and also received the new self-service for banks.
This could be announced at Q4 earnings.
If this is the case, we could start seeing some benefits of the new self-service through 2022 (those benefits in general are discussed in the next section).
In terms of benefits of the new ad server:
SKU / Product-Level Offers, leading to seeing the “major growth year” and how Bridg is “a gold mine”, both mentioned by Lynne recently (see past write-up on Bridg and Quant Notes for valuations with the current specific section here for paid subscribers))
New User Experience and Higher Engagement, leading to the minimum 200% increase in click rates discussed during Jan 2022 conference (which can be found in the Qual Notes, with the current specific section here for paid subscribers)
More local and SMB offers, since CDLX has been waiting for the new UI on the new ad server, since it will allow for better organization for these local and SMB offers. Could come from third-party content providers like Rewards Network, or from the POS partnerships (discussed in the write-up on Bridg.)
Push Notifications like U.S. Banks. Although other banks already have push notifications with redemptions, U.S. Bank has been the only bank to do push notifications to notify the user of new offers, which may be a function of the new ad server
and more
Benefits of the New Self-Service for Banks
As more banks use the new Cardlytics bank self-service feature, we could start seeing:
Higher cash-back offers (from boosting)
More offers (due to self-service), increasing probability of relevance
More differentiation among the banks AND their cards
Decreased risk of banks attempting to do offers in-house
Increased probability of other banks partnering with CDLX
These items are discussed in more detail below.
Benefit #1: Higher Cash-Back Offers (From Boosting)
The self-service for banks may lead to CDLX offers becoming more similar to AmEx offers.
From my understanding, not only does AmEx do their offers on their own but they also do not collect any portion of billings. This is why their offers are higher in amount (all going towards the offer).
This could be a good thing, as many others have said they prefer AmEx's offers over any of those seen in a Cardlytics-partnered bank, likely in part due to their high cash back amounts (especially when it is a relevant store).
In terms of examples of knowing if this will have an impact with Cardlytics, based on what I've heard showing up in Yipit data, the Allbirds and Away offers were a major success. This could be our first clue that CDLX will see some positive impact from the new bank self-service.
Offers that are both relevant and larger in cash-back amounts (saving you even more money at places that interest you) become harder to ignore by users. Reminds me of Steve Martin’s quote on how to be successful, “Be so good they can't ignore you.” (<1 minute video of quote here)
Benefit #2: More Offers (Due to Self-Service), Increasing Probability of Relevance
The self-service aspect should lead to more offers entering the platform, which should have a positive impact on relevance / engagement / redemption. This could be from the bank directly working with companies, or using third-party content providers.
It's also possible this self-service function for the banks leads to working with small to medium sized businesses that have bank accounts with these given banks. This could be a great way to get SMBs to use CDLX, and create another scenario where everyone wins (between banks + users + SMB + CDLX).
There are some reasons that this could work out better than many realize. Most business owners have at least a business account with a bank, and possibly also a personal account with that same bank (for instance, I have both a personal and business account with one of the CDLX-partnered banks). Therefore, a business owner may see and understand the offers from having either or both of these accounts (if they have a personal account, my assumption is it increases the odds of seeing the offers). Originally I thought that in order to take advantage of the businesses who bank with a CDLX-partnered bank, it would take a self-service platform within the business bank accounts that the business owners could use. However, if the banks have the self-service feature, it could work just as well, given the banks can call upon these business owners of this ability to advertise within the bank channels, increasing awareness and understanding of the offers and method of advertising. Although you may have less SMBs using CDLX given they cannot place the offers directly (yet), the banks can work with bigger SMBs that could possibly make up for the collective sum of smaller businesses (especially given the opportunity to explain this type of advertising, increase the understanding and how to use effectively). There is also the additional benefit of the larger the business, the more likely it is known and attractive the user.
The benefit here is all the banks that already have accounts that could be called upon to place offers within the bank. This decreases acquisition time and expense, since you already have many SMBs to call upon who could also be quickly familiarized with how the advertising works (since they can see in their own bank accounts the offers and may have already redeemed offers).
I still think we will eventually see a full self-service feature for the SMBs to place the offers themselves (in a similar manner to integrating with POS venders and showing up in their POS software, as discussed in the Bridg write-up), given the investor day comments regarding the bank having the governance tools as well (see the quote included at the beginning of this post).
To get an idea of how big of an impact this could have, according to their Q4 2021 earnings presentation, Chase has >4M small businesses:
I believe there has been <=400 unique advertisers using CDLX in a given year (based on what I’ve heard from those using Yipit data). Even if only 1% of these SMBS place offers, either from the banks self-service, or some future self-service for the SMBs, 1% of 4M is still 40K SMBs, or 100x the number of advertisers using CDLX today.
This could have a significant impact on future cash flow of CDLX, given this additional gross profit will not require much, if any, in the way of additional operating expenses for CDLX (therefore taking advantage of operating leverage). This is due to the offers coming from the work of bank employees (rather than CDLX), the self-service features, and technology already created (and therefore no additional expense to create).
Benefit #3: More Differentiation Among the Banks AND Their Cards
The differentiation concern is something frequently brought up.
Beyond the new different UIs, having exclusive offers to your bank is one of the best ways to not only have differentiation among the banks, but will also create differentiation among the cards within a bank.
While the exclusive offers will be the largest driver of differentiation, giving the banks the ability to do more on their own via the self-service feature will allow them to add more offers from their IPO clients, larger bank clients, small and medium sized (SMB) clients, and even work with third-party content providers if they want (assuming a similar situation to BofA and the Rewards Network). This could lead to significantly different offers sections among the banks, given each bank would be the one adding offers to their platform, rather than the opposite way of Cardlytics driving the same offers to all the banks.
Benefit #4: Decreased Risk of Banks Doing Offers In-House
Even if the risk was already minimal, the risk of banks attempting to do this on their own should decrease further, given they can now do more on their own(!) with the self-service feature + get all the benefit of Cardlytics (existing and further developed technology + dedicated resource + access to advertisers + product-level offers, etc.).
One key assumption I am making is CDLX will still get their normal economics with the bank self-service (as opposed to nothing or less), given the banks are still leveraging CDLX’s 600 employees, the new ad server, new user interface, ability for product-level offers, and combined reach to attract more advertiser. Banks then have the option to boost cash-back by using their FI share (matching what may already be occurring). I could be wrong with how the arrangement will work, given there is no information yet in this area.
Others have said banks will do this themselves to not share any revenue with Cardlytics. However, from my understanding, banks like AmEx do not pocket any revenue. It all goes to the offers, since they are more concerned with the engagement and other benefits than the additional revenue (additional benefits like high engagement, spend more, less attrition, higher likelihood of using other bank products, etc.). This shows engagement and other related benefits are more important than the revenue that could be pocketed. Therefore, the banks using the CDLX self-service for banks are giving up a small portion of consumer incentive (not revenue), but in return they receive additional benefits by using CDLX. The banks should be willing to do this since the additional benefits outweigh the short-term benefit of boosting current offers (explained more next).
By giving up a portion of billings that goes to Cardlytics instead of increasing the consumer incentive even more on existing offers, that amount going to Cardlytics is what funds the company that makes it possible to aggregate the reach of banks to attract more advertisers. When a bank does the offers on your own, the reach of a single bank makes it more difficult to attract all the advertisers possible, leading to less offers and less relevant offers. Therefore, even if that bank can make them higher in cash-back amounts, it may not be attractive to the user. Additionally, that amount that goes to CDLX instead of the consumer incentive leads to the creation and development of technology. Examples include the ability to have product-level offers from brands + CPGs + grocery + supermarkets within the bank offers, a self-service platform for advertisers / ad agencies / SMBs, and a new UI to organize local and SMB content. This all leads to significantly more offers than otherwise possible, and more offers than what we see in any of the banks doing it themselves.
I would give up having higher-amount offers on a smaller number of offers that are also less relevant (such as in AmEx) in exchange for slightly lower cash-back offers but on places and items I will actually buy, thereby actually redeeming the offers and actually getting cash back and in the end actually saving more money.
Benefit #5: Increased Probability of Other Banks Partnering
This new self-service for banks could also increase the probability of other banks partnering with Cardlytics.
Given the banks care more about the higher engagement and other related benefits that the offer section can offer, and given these will all be higher by using CDLX (as explained in detail in “Benefit #4” section), I think this self-service for banks may motivate the remaining large banks to use Cardlytics.
My thought is CDLX can pitch them they can continue doing their offers on their own, but leverage CDLX with their tech + SKU + employees + advertisers from combined reach, leading to overall higher levels of engagement.
AmEx at one time was even interested in working with Cardlytics. From comments by Lynne, it came down to sharing data. Maybe this new self-service platform for banks will be the extra push AmEx needs to get over the data hurdle, since they can continue doing what they are doing in a similar capacity but then get all the other benefits of Cardlytics and increase engagement even more.
This could also be why one of the ad agencies (I believe Horizon Media) thought Cardlytics signed a big bank in Q4 (with their guess Capital One). Given this idea of increasing the odds of signing a new bank with the bank self-service, maybe that actually led to getting a new bank. Additionally, and importantly, maybe this is why the ad agencies know about it. It could be due to the self-service aspect with the banks and them boosting offers on one of the ad agency’s clients, such as a pre-IPO client. Or it could that in order for the new bank to get the self-service for banks, they needed to also adopt the new ad server. If they do that, it will allow for product-level offers. This could lead to a large increase the MAUs that an ad agency with their brands and CPGs could advertise to. I think it is more likely to be what I mentioned earlier, regarding Chase adopting the new ad server and advertising reach increases via that method, but we will! Maybe both Chase added the new ad server and a new bank was signed!
In terms of the banks that could be signed, it could be AmEx (given my comments regarding incentivizing them with the self-service + matching the “big bank” comment by Horizon Media). Or maybe a smaller bank like USAA was signed (but this would not match the “big bank” comment, unless it’s a function of engagement, where I’ve heard USAA is more digitally engaged, but with around 13M members as of YE 2020, maybe still could be considered a big bank). USAA would match CDLX mentioning that in order to hit their goal of 50% of MAUs by the end of 2022, they could get banks such as U.S. Bank, Chase, and “a small bank”, with possibilities of BofA and Truist. U.S. Bank is already on. BofA would come from the renewal and negotiations (discussed here and here). The small bank unnamed could be someone new. USAA is possible, given I believe used by Figg. Maybe CDLX targeted them to remove Figg completely as a competitor. Or maybe USAA switched after the BofA situation (discussed here).
I’m very eager for the earnings call, where maybe one of these things is announced.
Closing + Predictions for Q4 Earnings Announcements
I am very interested to see how things will continue to develop, including very soon, such as during today’s earnings call.
In terms of a full list of predictions for what could be announced today during the Q4 earnings call:
For numbers, I feel CDLX likely had a good quarter:
We already heard from management that results should be near the high end of their guidance
There was a significant ramp up in the number of offers and new offers in Q4 (based on my own offers and others)
I heard some existing advertisers increased their spend even more in Q4 (based on others seeing this in Yipit data)
Travel started returning
Possible announcements that were discussed in this post:
Chase using the new self-service for banks
Chase adopting the new ad server
Any other banks adopting the new ad server (BofA via negotiations, or partnering with a new banks who adopts it right away, like USAA)
I think we may hear a positive update on product-level offers (such as related to Target, or due to Chase or others being on the new ad server which would lead to more MAUs to place product-level offers to, or maybe one of CDLX’s largest advertisers Starbucks placed their first product level offer since we know they are also a Bridg client now)
A new bank partnership. Horizon Media thinks Capital One. USAA and AmEx are both targets of CDLX, with USAA being more likely (as discussed in this post)
Other possibilities:
BofA update or announcing the renewal (Truist renewal was announced on same day of Q3 2021 earnings)
Mentions of IDFA tailwinds, which could have contributed to higher-than-expected results
Names of neobanks / fintechs, given they have been announced individually throughout the last couple of months
New innovative fintech partner. I still believe it is Affirm. Funny, when BNPL was all the talk last year, everyone was paranoid about it for Cardlytics. If CDLX and Affirm partnered, I wonder if people will even react? I feel they should, due to previous concerns of BNPL, and also given Affirm would be a significant partner, both in size and brand
Launch of the new ads marketplace with auction-based pricing could be coming live soon (may wait until more banks on the new ad server, but possible if Chase is on)
Venmo could be adding Dosh offers to their credit card (based on updated investor slides updated at Q3 earnings call date)
If you are looking to have this earnings-related information more in advance, as well as with more detail, check out my Quantitative Research Notes, where I’ve been adding to the related earnings section all February.
I’m looking forward to the earnings call later today!
Follow-Up
If you have any questions or push back on any of the above, please contact me. I would enjoy discussing more.
-Austin Swanson (Swany407)
Twitter: @Swany407
Website: Swany407.com
More Information on Cardlytics
Research Notes
Free Posts
The Power of Bridg (and Why CDLX is Undervalued): Write-up and video
BofA Renewal & Testing Competitors (Update): Write-up and video
New Observations, Upcoming Earnings Calls, and Updated Allocations (10.21.2021): Write-Up and video
Thoughts Following Q2 2021 Earnings and Price Decline: Write-up and video
Thoughts After Price Decline (5.17.2021): Write-up and video
Disclaimer: This content is not investment advice, and is intended for educational and informational purposes only. Before making any investment, you should do your own analysis. Please see the Disclaimer page for more details.