Cardlytics Inc (NASDAQ:CDLX)k saw its shares jump up after its hectic market debut that raised some $70 million for the analytics company, as investors seem sold on the promise of the company despite recent shakeups to its workforce. Following a somewhat lackluster IPO that priced Cardlytics shares at the low-end of their expected range, the market appears to have changed its tune on Cardlytics, seeing share prices jump up to as much as $16.50 before tapering off around $16 per share.
Investors are turning to data analytics
It’s not too challenging to see why investors are envisioning serious promise in Cardlytics’ future; the company, which focuses on providing data analytics services to its partners like Bank of America (NYSE:BAC), stands at the forefront of a rapidly growing industry, and could stand to benefit from an increased demand for its services for years to come. Cardlytics’ buoyed share prices flout the company’s poor finances, however; Cardlytics isn’t yet profitable, posting nearly $16 million in losses in the first nine months of 2017 alone.
While filings made with the SEC may not paint such a pretty financial picture, investors are nonetheless pleased to be backing Cardlytics; its IPO brought in a mere $70 million, and ensuing trading saw its share prices go down even further than expected, so news that the company’s stock is rebounding is readily welcomed on Wall Street. Still, it warrants further digging to understand what exactly made investors change their mind on Cardlytics after its relatively lukewarm IPO fizzled.
Nearly $16 million in losses thus far in 2017 may sound bad, but preceding years were even worse; Cardlytics posted losses of almost $76 million in 2016, and hit almost $78 million in losses in 2015. With news like that floating around, it’s hard to see why investors see so much promise in Cardlytics, but the answer could have something to do with the burgeoning industry it's set to dominate; marketing analytics will prove even more invaluable to companies in the future than they do today, and Cardlytics could stand to forge more lucrative partnerships like that which it presently enjoys with Bank of America.
Growth in its surrounding industry alone can’t explain Cardlytics’s rising share prices, however; investors will want to know what specifically Cardlytics is doing differently than its competitors, and for that they should turn to recent corporate shakeups. A hefty restructuring of the company which saw it dismiss some 15 percent of its workforce could stand to convince some investors that it’s on the brink of cutting business-related waste, for instance. Trimming its staff down to size will likely help Cardlytics post fewer losses in the future, but for true success, the company will need to expand its consumer base.
Too reliant on partners?
For many onlookers, Cardlytics is troubling because of a perceived over-reliance on its existing partnerships. While the company can boast that it has more than 2,000 financial institutions currently partnered with it, the vast majority of its revenue stream is derived from its relationship with Bank of America alone, rendering it risky in the event that the bank undergoes financial troubles, or has a change of heart when it comes to working with Cardlytics.
Monthly active users are the key to Cardlytics future; if the company can employ its software in a savvy-enough fashion to ensure that it reaches a wider target audience interested in consumer goods, it will likely cement more partnerships that will help alleviate many fears that it’s too reliant on Bank of America.
It’s not entirely fair to say that the recent uptick in trading is particularly strange, either; after all, Cardlytics made its market debut during a turbulent time that saw the DOW’s valuation rapidly plunge only to quickly rise once more, meaning investors were likely spooked about ongoing IPOs. It stands to reason that the disappointing share prices Cardlytics originally endured may have been a result of queasiness from broader market ills, and don’t have much to do with the company’s future valuation.
Regardless of a rapidly growing data analytics market or presently-lucrative relationships with large financial institutions, Cardlytics is still riddled by some serious troubles. The company’s inability to post a profit should be worrying to potential investors, and recent labor shakeups may have been a sign of corporate discord just as easily as it was a sign of waste-cutting. While companies that can cleverly leverage data for success in the market are an incredibly hot buy right now, for good reason, keep your eye on Cardlytics. The company may be trading up for now, but its revenue concerns aren’t going anywhere anytime soon, and its executives need to start concerning themselves with profits if they intend to find success in the marketplace. Cardlytics trading is undergoing a brief heyday, but the company still has plenty of skeletons in its closet.