Cardlytics (CDLX) Takes a Hit on Covid-19 Uncertainty and Management Shuffle
“When you are in doubt, be still, and wait; when doubt no longer exists for you, then go forward with courage.” White Eagle, Ponca Chief, 1840 – 1914
Cardlytics reported preliminary Q4 revenue results a while back that were better than expected, and last night in the official earnings release and on the conference call management announced that profitability was also way above expectations. Adjusted EPS of $0.18 beat by $0.14; a huge margin.
That’s about where the good news ends, for now. Shares are down roughly 30% this morning after management gave very light Q1 2020 guidance (revenue in a range of $43.5 million to $46.5 million is well below consensus of $55.2 million), saying consumer spending is extremely uncertain in this environment due to COVID-19. The bottom line is that advertising dollars are drying up since consumers are less likely to spend in areas like dining out, travel, coffee shops, etc. where Cardlytics’ platform has a lot of exposure. Uncertainty around the Wells Fargo rollout (about 35% complete), which may also be affected, also plays into the very conservative guidance.
Another wrinkle comes in the form of a management shuffle. Co-founder and CEO Scott Grimes becomes executive chairman, co-founder and COO Lynne Laube becomes CEO, chairman John Balen slides into the lead independent director position, CFO David Evans becomes Chief Administrative Officer while SVP/Controller Andy Christiansen becomes the new CFO. Whether or not these shifts had any impact on marketing spend is unknown. And we don’t know if there was any drama in the executive suite or not.
Finally, this stock has been a high-flyer and there’s no doubt it has had a target on its back as a result. When expectations are sky high, along with a stock, any slip up means pain.
Big picture, the management changes are disruptive but, in my view, not unusual given the growth stage of the company. This type of thing happens as a company evolves. I’ll be digging to see if I can find any dirt.
As for the light guidance, that’s a big negative for now. But we know that this company is directly tied to consumer spending – that’s what the platform is all about. And it’s why the stock has done so well, at least until today. With growing scale and previously strong consumer spending the growth rate has been exponential. It can go down quickly also.
The silver lining is that if COVID-19 proves to be a short-term blip (i.e. a quarter or two) then there could be a massive rebound in consumer spending. That would potentially come at a time when the Wells Fargo rollout has progressed, which could drive advertisers to aggressively ramp up spending to attract all the eyeballs that had previously been drawn to coronavirus-related headlines!
Bottom line – this selloff hurts. There’s no doubt about that. This stock was already well off its high, and after this it’s now roughly 50% off its high. That means our gain is now “only” 44%.
But I don’t think it’s a sell on this news. I like this company and the business model and think this is a bump (albeit a big one) in the road. It opens the door to buy a compelling growth stock when a lot of people are turning their backs on it.
Is it a buy right now? To start a small position or add to an existing one, sure. But not for a big position, unless you are a very aggressive investor. I believe this is an opportunity to watch CDLX closely and be ready to jump in once it looks more stable. That might be 10% or 20% higher than where it is now, and maybe not for a few weeks or even months. I’d like to see some stability and have a sense of the broader impact of COVID-19 first.
Ultimately, I think CDLX is going much higher. And while it hurts to endure these types of corrections, they come with the territory. I’m keeping Cardlytics at hold. HOLD
In other news Appfolio (APPF) reported earlier this week that Q4 revenue was up 33.7% to $67.4 million (beating by $580,000) and adjusted EPS of $0.12 beat by $0.08. It was a good quarter and the stock had a relatively muted response, given the broad market conditions. I’ll follow up with more details on the report once I complete this month’s Issue. But my rating will not change. Appfolio remains a hold. HOLD