$CDLX - Thoughts and Updates + Data Coverage

Leaving the title vague as there isn’t really anything specific/interesting to share in terms of business progress. The purpose of this article is just to share my current thoughts BEFORE anything happens, as well as an exciting update on data coverage for CDLX.

Data Coverage:

First up, an announcement.

In partnership with

Austin Swanson

I’m happy to announce dataset coverage for CDLX via Clarity (click the link).

Similar to CVNA, this coverage comes in a freemium form. In this case that means you have free access to data files on a 1 month trailing basis.

The data coverage covers a panel of card holders Austin has curated to track trends in CDLX offers, as well as some overarching commentary and other interesting data. Feel free to download a file on the site to check it out.

As a form of endorsement, Austin has shared plenty of pure alpha on CDLX in the past including when SBUX began placing offers again in Q1, which saw the stock increase ~15% intraday as news spread. Austin had the word out within minutes.

Pricing is currently $200/m which provides a cheaper and more flexible option to Austin’s Substack for subscribers purely interested in CDLX data. That said, I highly recommend a subscription to his Substack as well for those interested in his work on CVNA and other names.

It’s also a way you can support Austin and I without just donating!

CDLX Update:

As mentioned, this update is largely due to the fact there isn’t much to update on.

The stock has been effectively in the same place since August, with some meaningless bouncing around in the interim. Investors are basically just waiting to see what 2025 looks like due to delivery issues in 2024 being the defining theme. If there was any progress, it would be masked by delivery issues. Or potentially delivery issues are an excuse for a lack of progress (hence the stock being $4). That’s the general market sentiment.

That sentiment is also quite similar to mine. There were a lot of potential tailwinds coming into 2024 that led to rapid stock acceleration in Q1. AmEx was a signed partner, SBUX was placing ads on the platform, Chase had improved rev share, the tech stack was improving, etc. These ended up not having much of an impact on 2024 results of course.

The resulting question is basically, why did it not have an impact, and will it have an impact in the future?

1. AmEx:

   1. Why No Impact: The AmEx signing obviously was going to take time to scale the partnership. The current timeline is a small pilot running currently, with a full rollout likely in late Q1 or so. This is pretty similar to timelines in the past as bank tech takes a long time to scale. It’s possible I should have exited my position earlier this year at ~$20 on AmEx news as my hunch is the market expected faster progress here.

   2. Future Impact: Keep in mind this is mostly speculative, but I do believe AmEx will have a significant impact on CDLX in the future. Given the nature of the business with high fixed cost and no marginal cost, any additional earnings from AmEx can cause drastic changes in stock price. The downside is that the exact arrangement and mechanism of the CDLX relationship with AmEx is and will be unknown. All we know is that AmEx offers are roughly the size of Chase, CDLX gets some % of that, margins are likely accretive given no rev share.

2. SBUX and other large advertisers:

   1. Why No Impact: CDLX has seen a decent chunk of high spend partners not return or lower spend this year, SBUX and WMT among them. There are effectively two sides to this. One could view the lack of retention in key accounts as an indication that card linked offers do not and cannot work, otherwise why leave? I reject this notion was we see Chase dumping attention into CLO’s all of 2024 (see Clarity or Austin’s blog for more on that). Instead I believe that a lack of stickiness due to delivery issues, BofA down scaling, other advertisers improving product, a weak year for restaurants, etc, are the main cause for CDLX underperformance vs CLO as a whole. That’s not to say CDLX is blameless, delivery issues and the like may have been avoided with a different team in place, but it’s quite relevant when the market considers them fully culpable.

   2. Future Impact: It’s possible CDLX has irreparably harmed some large advertiser relations with their issues in 2024, on the flip side they don’t really have more concentrated spenders to lose! Intuitively, the product improvements such as AmEx (scale), dashboards (measurement/ease), partnerships and integrations (measurement/ease), delivery improvements (ROAS/measurement), etc, should make CDLX a much more attractive product in 2025 and 2026 than it was in 2023/2024 when it bled out large corporates. Additionally, BofA literally cannot get worse from here, which was a big drag in 2024 on CDLX potential volume whereas 2025 should see a boon from WFC UI update+AmEx.

3. Chase Rev Share and overall relationship

   1. Why No Impact: Chase revenue share was a big boon in Q4 2023 and Q1 2024. Margins have since reverted. This is largely due to delivery issues causing outsized redemptions payments relative to billings. Beyond revenue share, Chase has leaned much more into CDLX and CLO’s more broadly through the course of 2024 (again, more info via Clarity or Austin). This has not had a material impact on CDLX most likely due simply to other banks slacking combined with CDLX’s delivery and client retention issues. BofA at this point I’d guess is near 10% or less of total billings, when it used to be ~30-40%. CDLX is obviously somewhat complicated given the 3 pronged system, but BofA has been a clear drag outside of their control.

   2. Future Impact: Chase’s work to promote CLO’s should continue to lead to rapid growth of the Chase platform (my calc’s are ~30% CAGR). Given BofA is now much smaller and Chase is much larger, future growth rates should benefit. Additionally, the more Chase continues to lean in on CLO’s, the more likely it is other banks realize the trend is not a fad to safely ignore. My guess is we were at a trough of CLO sentiment from WFC/BofA during 2023/2024. A reversal may not occur in 2025, but long term trends are positive for CLO’s in my view. The downside here of course being if Chase decides CDLX is not additive to their platform as priority increases. I do not view that as a possibility, but may be unforeseeably wrong.

4. Tech Stack Improvements:

   1. Why No Impact: As funny as it is to say, I do think CDLX has done a decent job at improving the tech stack. The job of making bank tech is a bitch and they currently have like 4-5 fully separate product versions live, without full control of updates and improvements. I can easily understand how delivery is an issue for them and how that may overshadow other improvements. For what it’s worth I was hearing about delivery automation struggles in Q4 of 2022 as the system was being built. The time it takes for any progress to be rolled out at scale in this business is quite high unfortunately for prior purchases, but may be a boon for future ones.

   2. Future Impact: In theory, CDLX should just have a continuously improving product for 2025 and forward. This should directionally make retention easier, make ROAS better and thus margins better, make it easier to onboard new bank partners, etc. Totally possible they continue to find ways to have problems, but the ball should be rolling in the right direction here.

Overall, CDLX had a quite disappointing 2023 and 2024 given the expectations. It’s a fixed cost business with no marginal cost to deliver ads. I keep harping on this as the second something improves, the stock can drastically re-rate. Despite the disappointment, there are bright spots in AmEx and Rippl and a variety of other things.

That said, disappointment always has a price. Given the opacity of the business, it’s entirely possible it’s a melting ice cube with no saving grace. We don’t get consistent disclosure of pretty much any meaningful KPI and terms of contracts are always redacted. The result is a $4 stock price when fair value could easily be north of $20 with improvements. I don’t foresee this improving in the near term barring a surprise AmEx announcement, which I expect no details of until the Q4 report via Q1 guidance or perhaps even later.

What I’m Doing:

Given the coverage served via Austin and Clarity, combined with the fact I doubt we see material catalysts in the near term, I’m not rushing to buy CDLX at these levels. I believe a large difference between CDLX and other holdings such as CVNA/BLND is that CVNA/BLND traded off of very visible data improvements in interest rates, alt data, mortgage applications, subprime loan performance, etc. The volatility between earnings was higher, and earnings could be calculated with more precision.

With CDLX, I believe the market is essentially just waiting around for more AmEx information or for large improvements, and the stock is basically range bound until that occurs.

I’d rather wait for indications of fundamental improvement via data coverage, which if I had done in 2024, would have been drastically more profitable.

With any questions about the article or datasets, feel free to reach out via Twitter or indra@clarity-markets.com

Cheers