$CDLX and $BLND: Pre earnings update
Welcome back everyone, earnings are a bit clustered this quarter so we get to get it over with all at once.
Without further ado
$CDLX:
CDLX unlike CVNA does not have clean data on QTD results.
does share web traffic patterns across their URL’s, but this is yet to be confirmed as something with high read through to revenue. What does appear to be clear however from the data is that consumers are interacting with the offering more than ever, and continuing to accelerate as the new UI rolls out more broadly. Click throughs per day were up something like 19% QoQ in Q3. Theoretically if this was 1:1 with revenue growth, we’d see revenue coming in above the high end of guidance and lead to something like 25% YoY growth. Dropping that level of revenue growth onto the cost structure probably gets you close to break even EBITDA (prior to any adjustments) and cleanly positive AEBITDA.We’ve seen further acceleration into Q4 that could under the same logic imply revenue around $110m, at which point EBITDA is >$10m.
Lots of assumptions being put to work there, so the point isn’t that the results will look like that, simply what they may resemble if additional revenue falls into CDLX’s hands. $10m quarterly EBITDA as an example would imply a high teens of TEV/runrate EBITDA (Of Q4, but likely further growth in 2024) while growing 25-35%. In such a case you pretty quickly start getting to single digit TEV/EBITDA implying a fair value on the stock of >$50 in 2-3 years.
Of course again this is assuming
The company is growing 25-35%, which may not be true and depends on reported earnings if data is untrustworthy
Much of future growth likely needs to come from other banks getting on new ad UI (mainly WFC and BofA) which is not guaranteed to happen in a reasonable time frame
No further unexpected issues with Bridg or silly capital allocation decisions.
Advertisers continue to see value in the channel at scale and macro events do not tighten ad budgets for CDLX.
In theory for 1 we have the traffic data, which correlates with higher than ever offer counts, higher than usual discounts, etc.
For 2 we would expect BofA and WFC to transition given the success of JPM if its indeed growing largely due to JPM new UI, but just because banks want to doesn’t mean they can.
For 3 it’s never guaranteed that management makes good decisions, but I see no reason to not trust Karim at this time and Bridg seems to be resolved based both upon my understanding of the matter and management communication.
For 4 one would imagine if data results are true that CDLX is continuing to ramp into Q4 despite quoted weakness from other ad sellers that is represents a strong niche even in economic downturns. Intuitively this holds given the explicit ROAS focus of the model, but advertisers can easily be irrational.
Largely what I’m looking for is the following:
Strong revenue growth with commentary surrounding the efficacy of the new ad UI
Leverage of cost structure if it is indeed growing
Outlook on new partnerships and BofA/WFC transition. A natural path is international expansion if they can start launching new UI experience quicker at subsequent banks. Chase took awhile so want to see them step up the pace.
Updates on Rippl - very curious how quickly this can scale and provide meaningful numbers.
I am certainly hoping for a strong Q3 report and Q4 guide given the position is some silly % of my PA. All the data available seems to point that way, but the stock has sold off considerably over the past month or so. It’s entirely possible I’m missing something, or possible the market got it wrong. We’ll have to see.
$BLND:
For BLND I don’t have a long list of expectations. It’s rather basic - continue cutting out cost, take price where possible, hope the mortgage market works out. Gaining market share would be a nice plus as well.
Essentially the thesis is rather simple - they should win in a downturn and have pricing power while the stock is somewhat priced for death. A natural question is “why is that a good thesis what’s the edge”. Given other positions try to use a semblance of info advantage, it is fair that when BLND does not follow a similar pattern to question it.
One way this is expressed is via smaller position size relative to CVNA and CDLX.
The other answer is that I have a few general theories that seem underappreciated by the market. In this case they are the following:
Bank tech is a great place to invest as banks continuously lean into being digital first platforms as they shift their core services to being more data enabled or lose to fintechs/neobanks. Recent stresses only exacerbate the need for workflow optimization and improving consumer retention.
Rate assets are selling drastically below trend and normalization will occur if rates are simply flat, not just down. My theory is that consumers hold off on purchasing due to the belief they can get a better deal, not due to actual purchasing power changes.
Software companies can cut out far more costs than expected if competitive pressures alleviate. Many software companies could have their core product maintained by a team of probably 20-100 people depending on scale. They of course model themselves differently due to competitive pressures and growth expectations and socialization, but back to the wall one would expect rational decision making to come in. BLND’s competitive pressures are likely down given how ugly the space has been with competitors being acquired for pennies or ceasing operations, so it’s a ripe opportunity to optimize the cost structure. This has been explicitly guided to, but the extent of which it is possible in combination with the above factors sets up a good bet in my opinion.
Really earnings review for BLND is simple - do they do better than the mortgage market and lever costs? If they don’t, that is likely a cause for concern. If they do, it’s question of if the trajectory is good enough.
Once again we will simply have to wait and see. I do hold this one on a shorter leash given the extent to which results are out of their control.
$CVNA: Post earnings brief summary
CVNA went basically as expected, nothing new to really share. Economics and units came in almost dead on expectations.
The only real notable factor is advertising spend. Being down meaningfully QoQ is quite interesting given record economics. This leads one to the natural question of “why aren’t they spending more ad dollars to get incremental profit?”
My theory which I’ve held since prior to these results is that they simply have a supply constraint. Said supply constraint could be due to a couple of factors
Focus: It’s hard to scale and be efficient. Dropping some GP dollars to guarantee you’re building off a base of best practices is likely fair given liquidity window created by debt exchange.
Labor: The dynamic of being overstocked and firing earlier in the year makes it hard to grow stock later in the year. Hiring has taken off in this regard recently, but scaling takes time.
Consumers: If consumer expectations of acquisition price are off base to the point there’s a large mismatch in supply/demand - additional advertising dollars can’t necessarily fix this. Likely plays some role, but I’d be surprised if incremental units weren’t explicitly positive currently.
ALLY: It’s also entirely possible that CVNA is simply facing a constraint in recycling capital. This would be a significant negative if true. I don’t see a reason why, and management would never say it was happening, but it is entirely possible and would significantly hurt the thesis.
I am curious as to the answer. I’m not sure how answerable it is unfortunately, but I will keep an eye out for any info that moves the needle given implications.
Cheers.