April 30 2018
Purchase Intelligence for Retailers
Cardlytics (NASDAQ: CDLX) is a recent addition to our Battle Road IPO Review Software sector coverage. Founded in 2008 by Scott Grimes and Lynne Laube, who serve as the company’s CEO, and COO, respectively, Cardlytics has created a data platform based on consumer purchase data, which it provides to retailers and banks. Consensus estimates call for revenue of $159 million and a loss of $1.70 per share in 2018, followed by revenue of $228 million and a loss of $0.85 in 2019.
Cardlytics made its debut on the NASDAQ on February 8, 2018 in a 5.4 million share IPO priced at $13 per share, with all proceeds of roughly $65 million going to the company. The deal was led by BofA Merrill Lynch, J.P. Morgan, Wells Fargo Securities, SunTrust Robinson Humphrey, Raymond James and KeyBanc Capital Markets. At a recent share price of $14, Cardlytics’ current market cap is roughly $280 million.
Cardlytics has created a purchase intelligence platform, which aggregates and analyzes customer purchase data provided by over 2,000 banks and credit unions. The data is then sold to retailers, including restaurant chains, retailers, cable and satellite TV and wireless providers, so that they can target online ads to banking customers logging into their phones for account update information. The company’s marketer customers include 20 of the top 25 U.S. restaurant chains, according to Nation’s Restaurant News, 23 of the top 50 US retailers, according to the NRF, three of the top five cable and satellite TV providers, and three of the top four wireless carriers, as measured by subscriber counts.
Cardlytics’ top five marketers accounted for 24 percent of revenue during the nine month period ended September 30, 2017, and a similar amount in the prior two years. As part of its business model, Cardlytics pays fees to banks and credit unions for access to their customer information, which has been anonymized to prevent a compromise of identity. Fees paid to banks accounted for 53 percent of revenue through the nine months ended September 30, 2017, down from 59 percent of revenue during the prior nine month period.
Under the terms of a General Services Agreement (GSA) signed with Bank of America in 2010, Cardlytics provides Bank of America with access to its Cardlytics Direct platform, as well as the ability to customize the underlying software in Cardlytics Direct. The GSA terminates on November 4, 2021, and may be extended by Bank of America for additional one year periods. As part of the agreement Bank of America has the right to approve or disapprove of any marketer offers presented to Bank of America customers on Cardlytics Direct. Bank of America has accounted for an average of 63 percent of Cardlytics Financial Institution share in each of the last three years.
Cardlytics’ business model remains a work in progress: for the nine months ended September 30, 2017, Cardlytics posted revenue of $91 million, with an operating loss of $15 million. This compared to $76 million in revenue for the prior year period, during which the company recorded a $27 million operating loss, exclusive of a non-cash $26 million expense for the termination of a U.K. agreement. An encouraging sign is that revenue grew by 19 percent, a faster rate than the company’s Financial Institution Share and other third-party costs, which grew by 13 percent during the same period.
Having raised roughly $65 million in IPO proceeds, Cardlytics has dramatically improved its balance sheet, which now features roughly $93 million in cash and $55 million in pre-IPO debt for a net cash position of $38 million. To learn more about how Cardlytics is valued relative to its IPO peers, please contact Battle Road Research at [email protected].