Forget Facebook. Look at This Exciting Adtech Stock Instead

Uncover - Cardlytics stock

Author: Tim Phillips

December 2, 2020

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Facebook Inc (NASDAQ: FB) gets all the attention as a big online advertising stock. However, there’s a much smaller adtech company that could provide investors with better long-term returns.

Tim’s take:

Facebook has dominated the headlines in the online advertising space. That’s understandable given the dominance the company, along with Alphabet Holdings’ (NASDAQ: GOOG) Google, has in the space.

Yet there are many other companies in the advertising technology (adtech) space that occupy specific niches. And, unlike Facebook or Alphabet, they’re very early on in their growth stories.

One of these is Cardlytics Inc (NASDAQ: CDLX), an advertising platform provider for banks’ online channels.

The company partners with banks to provide insights on both online and offline purchases. Cardlytics then uses these to target ads to people within the banks’ digital channels.

So far, Cardlytics has signed up some major banking partners including Chase, of JPMorgan Chase & Co (NYSE: JPM), and Wells Fargo & Co (NYSE: WFC).

Through its major banking partners, it has been able to reach monthly average users (MAUs) of 161 million banking customers.

Opening up story

Understandably, shares of Cardlytics got whacked earlier this year, falling to a low of US$28 as the Covid-19 pandemic sparked lockdowns in the US.

However, since then shares have rallied about 350% as investors view Cardlytics as a beneficiary of the re-opening of the economy in 2021 on the back of successful vaccine news.

Although revenue and billings have slumped over the past few quarters and losses have mounted, Cardlytics’ latest earnings call in early November saw management commenting positively that many part of the business are moving in the right direction.

Second-quarter 2020 revenue for Cardlytics looks likely to have bottomed at US$39.5 million as third-quarter revenue saw a pick-up to US$62.1 million.

Perhaps more importantly, the average revenue per user (ARPU) is starting to pick up again – while it continues to also grow its MAUs (see below).

Cardlytics ARPU

Source: Cardlytics Q3 2020 earnings presentation

Looking to the future of adtech

Investors should be reminded, though, that Cardlytics is still operating at a loss. Its reliance on consumer banking – with all the retail and travel exposure that comes with that – also means that a meaningful rebound in revenue and ARPU may only be apparent when a vaccine is widely distributed.

However, for long-term investors, this adtech company is an interesting play on the growth of targeted digital advertising in the banking space. What’s more, revenue growth is likely to come from higher ARPUs over time rather than taking on a whole host of new banking partners.

As banks start to digitise (it’s been a long time coming) and shift their ad spend towards online channels, Cardlytics should be a bigger beneficiary of this over the long term.

Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.