US Neobank And Taiwan Office Will Unlock New Markets

Key Takeaways

• Expansion into new sectors and partnerships with financial institutions and neobanks is expected to diversify the customer base and boost revenue.
  
• Enhancements in advertising and strategic investments in technology target increased sales, improved operational efficiency, and better net margins.
  
• Executional challenges, advertiser churn, and decreased billings signal operational inefficiencies and financial volatility that could hinder revenue and profitability.

Catalysts

Operates an advertising platform in the United States and the United Kingdom.

• Cardlytics is expanding its partnerships with financial institutions and new sectors, including signing a new neobank in the U.S., which is expected to scale quickly and diversify its customer base, likely impacting future revenue positively.
  
• The company is focused on enhancing its advertiser offerings through microtargeting and leveraging a broader data set, expected to drive incremental sales and attract larger advertiser budgets, with a positive impact on revenue and earnings.
  
• Cardlytics is improving its network performance by increasing campaign delivery predictability and shifting to engagement-based pricing, which should enhance advertiser trust and engagement, positively affecting revenue and net margins.
  
• Strategic investments in technology and new market entries, such as opening an office in Taiwan, aim to leverage local talent for innovation and growth, expected to improve operational efficiencies and future net margins.
  
• The company's divestiture of non-core businesses, such as Dosh, allows for resource reallocation to high-priority areas, potentially improving operational efficiencies and net margins in the future.

Cardlytics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cardlytics's revenue will grow by 2.8% annually over the next 3 years.
• Analysts are not forecasting that Cardlytics will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Cardlytics's profit margin will increase from -68.0% to the average US Media industry of 8.6% in 3 years.
• If Cardlytics's profit margin were to converge on the industry average, you could expect earnings to reach $26.1 million (and earnings per share of $0.41) by about April 2028, up from $-189.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, up from -0.4x today. This future PE is lower than the current PE for the US Media industry at 13.7x.
• Analysts expect the number of shares outstanding to grow by 6.77% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.5%, as per the Simply Wall St company report.

Cardlytics Future Earnings Per Share Growth

Risks

• Cardlytics faced executional challenges around network upgrades and changes in FI partner platforms, which may continue to impact operational efficiency and thereby constrain revenue growth.
  
• There was an increase in churn and reduced budgets with some large advertisers in the U.S. due to organizational changes and macroeconomic factors. This can impact revenue negatively if not addressed.
  
• Billings for 2024 showed a decrease compared to the previous year, with top-line billings experiencing a negative growth of 0.7%. This decline may affect revenue and net margins.
  
• Despite making strategic investments, adjusted EBITDA declined from $10.3 million to $6.4 million year-over-year, highlighting potential cost management issues that could affect profitability.
  
• The company acknowledges that Q1 may represent the lowest billing quarter of 2025, indicative of ongoing financial volatility that may impact revenue and profit forecasts for the year.

Valuation

• The analysts have a consensus price target of $3.3 for Cardlytics based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $5.0, and the most bearish reporting a price target of just $2.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $302.5 million, earnings will come to $26.1 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 10.5%.
• Given the current share price of $1.5, the analyst price target of $3.3 is 54.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.