Business Overview and History Cardlytics, a leading digital advertising platform, has been at the forefront of revolutionizing the way marketers connect with consumers. With a unique approach that leverages purchase data and financial institution partnerships, the company has carved out a distinctive niche in the rapidly evolving advertising industry.
Cardlytics was founded in 2008 with the mission of making commerce smarter and more rewarding for everyone. The company operates a digital advertising platform that partners with financial institutions to run their rewards programs. Cardlytics' innovative platform operates within financial institutions' digital channels, including online banking, mobile applications, email, and real-time notifications. By applying advanced analytics to anonymized purchase data, Cardlytics empowers marketers to reach potential buyers at scale and measure the true impact of their campaigns.
In its early years, Cardlytics focused on building out its technology platform and establishing partnerships with major financial institutions in the United States, including Chase, Bank of America, and Wells Fargo. This strategy allowed the company to gain access to a significant amount of consumer purchase data and expand its reach to millions of banking customers. However, onboarding new financial institution partners proved to be a key challenge, as the process of integrating Cardlytics' technology with a bank's systems and obtaining approval to access customer data could take several years.
The company's journey has been marked by steady growth and strategic partnerships. In 2018, Cardlytics went public on the NASDAQ exchange, raising capital to fuel its expansion. Over the years, the company has forged strong relationships with leading financial institutions, providing them with access to its proprietary purchase intelligence and enabling them to offer compelling incentive programs to their customers. Cardlytics has also expanded internationally, particularly in the U.K. market, and made strategic acquisitions, such as the purchase of Bridg in 2021, to enhance its data and analytics capabilities.
Throughout its history, Cardlytics has had to navigate changes in its financial institution partners' technology and user experience, which have impacted the delivery and performance of its advertising campaigns. The company has also adapted to evolving data privacy regulations, ensuring compliance in how it collects and uses consumer information. Despite these challenges, Cardlytics has remained focused on its mission of making commerce more rewarding for consumers and continues to invest in its technology and data infrastructure to better serve its partners and clients.
Financial Performance and Ratios Cardlytics' financial performance has been a mix of successes and challenges in recent years. For the fiscal year 2023, the company reported annual revenue of $309.20 million and a net loss of $134.70 million. The company's annual operating cash flow stood at -$0.19 million, while its annual free cash flow was -$12.58 million.
Key financial ratios paint a nuanced picture of Cardlytics' financial health. The company's current ratio, a measure of short-term liquidity, stood at 1.18 as of the latest reporting period, indicating a solid ability to meet its current obligations. However, the company's debt-to-equity ratio of 3.06 suggests a higher-than-average reliance on debt financing, which could expose it to additional risks.
Quarterly Performance and Guidance Cardlytics' most recent quarterly results for Q3 2024 highlight both progress and ongoing challenges. Revenue for the quarter stood at $67.06 million, a 15% decrease year-over-year. Billings, a non-GAAP metric, were $112.0 million, a 4% decline from the prior-year period. The decrease in revenue was primarily driven by continued challenges with ad delivery, which impacted the company's billings. However, the company saw growth in new brand logos, up 38% year-over-year, which helped offset some of the declines.
The company's adjusted contribution, a key performance indicator, decreased 11% year-over-year to $36.4 million. However, adjusted EBITDA fell to negative $1.8 million, down from $3.6 million in the same quarter of the previous year. Net loss for the quarter was $145.18 million, while operating cash flow was positive at $1.39 million and free cash flow stood at -$3.87 million.
Looking ahead, Cardlytics provided guidance for the fourth quarter of 2024, expecting billings between $102 million and $108 million, representing a 22% to 18% decrease year-over-year, excluding their former subsidiary Entertainment. This guidance is driven by continued but improving challenges with delivery as well as pipeline. The company expects revenue between $62 million and $67 million, adjusted contribution between $33 million and $36 million, and adjusted EBITDA between negative $5 million and negative $1 million.
Cardlytics expects continued disruption in Q4 2024 from delivery challenges but believes modernizing their technology and evolving their pricing are necessary for long-term success. The company is seeing advertiser caution around budgets, especially in the restaurant and travel verticals, which will impact Q4 performance. However, Cardlytics expects the UK to continue seeing double-digit billings growth in Q4.
For 2025, Cardlytics believes performance will accelerate as they improve operational execution, scale a major new financial institution partner, see continued strength in the UK, and start to more fully realize contributions from Ripple.
Operational Challenges and Transformation Cardlytics has faced several operational challenges in recent quarters, primarily related to delivery issues and fluctuations in consumer incentives. The company has taken decisive steps to address these challenges, including implementing stricter limits on campaigns, enhancing daily monitoring, and improving its ad-decisioning engine.
To better serve its growing network of financial institution partners and marketers, Cardlytics is undergoing a strategic transformation. The company is focused on four key pillars: expanding its supply-side partnerships, strengthening demand-side relationships, enhancing network performance, and more closely integrating its Bridge and Ripple platforms.
Amit Gupta, who recently assumed the role of CEO, has centered the organization around these priorities, aiming to drive increased consumer engagement, reward optimization, and long-term sustainable growth.
Liquidity Cardlytics' liquidity position is an important aspect of its financial health. The company's current ratio of 1.18 indicates that it has sufficient short-term assets to cover its short-term liabilities. However, the higher debt-to-equity ratio of 3.06 suggests that the company may face challenges in managing its debt obligations in the long term.
As of the latest reporting period, Cardlytics had cash and cash equivalents of $66.99 million. The company also has access to a $60 million credit line under its 2018 Line of Credit, which was recently extended through July 2026, providing additional liquidity. In April 2024, Cardlytics issued $172.5 million in Convertible Senior Notes due 2029, using the proceeds to pay down a portion of its 2020 Convertible Senior Notes.
It's crucial for Cardlytics to maintain a balanced approach to liquidity management, ensuring it has enough cash on hand to meet operational needs while also servicing its debt obligations.
Product Segments Cardlytics operates two main product segments:
1. The Cardlytics Platform: This is the company's proprietary native bank advertising channel that enables marketers to reach consumers through financial institution partners' digital banking channels. The platform is priced predominantly in two ways: Cost per Served Sale (CPS) and Cost per Redemption (CPR). During the nine months ended September 30, 2024, the Cardlytics platform generated $187.34 million in revenue, representing 92% of the company's total revenue. This revenue was split between CPS (62% of Cardlytics platform revenue) and CPR (35% of Cardlytics platform revenue).
2. The Bridg Platform: This platform primarily generates revenue through the sale of subscriptions to its cloud-based customer data platform and the delivery of professional services. During the nine months ended September 30, 2024, the Bridg platform generated $16.96 million in revenue, representing 8% of Cardlytics' total revenue.
Geographic Performance Cardlytics operates primarily in the US and UK markets. In Q3 2024, US revenue decreased 17% year-over-year, while UK revenue grew 33% year-over-year, reaching an all-time high for consumer rewards in the UK business.
Competitive Landscape and Risks Cardlytics operates in a competitive digital advertising market, facing competition from a variety of players, including online retailers, credit card companies, and enterprise software providers. The company's ability to maintain its partnerships with financial institutions and attract marketers is crucial to its long-term success.
Additionally, Cardlytics faces regulatory risks related to data privacy and security, as it handles a significant amount of consumer purchase data. Compliance with evolving data protection laws, such as the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), is an ongoing challenge that the company must navigate.
The broader macroeconomic environment, including inflationary pressures and potential recessionary conditions, also poses risks to Cardlytics' business, as it could impact marketing budgets and consumer spending patterns.
Conclusion Cardlytics' journey in the digital advertising space has been marked by both successes and challenges. While the company continues to navigate operational hurdles and adapt to a changing competitive landscape, its unique position within the financial institution ecosystem and its focus on transforming its business model suggest that it may be well-positioned to capitalize on the growing demand for purchase-based advertising solutions.
As Cardlytics works to enhance its platform, strengthen its partnerships, and optimize its operations, investors will closely monitor the company's progress in delivering sustainable growth and shareholder value. The company's ability to overcome delivery challenges, capitalize on its UK market growth, and successfully integrate new financial institution partners will be key factors in determining its future success.