Deep Dive 35: How Cardlytics Harnesses $5.8 Trillion in Transaction Data for Commerce Media (CDLX)

The discussion centers on Cardlytics, a company revolutionizing financial data usage to enhance advertising and consumer loyalty. By processing over 12 billion transactions annually, Cardlytics offers predictive marketing based on verified consumer behavior, partnering with banks to create targeted offers. Their model emphasizes trust and data rights, aiming to connect financial and retail data for more granular targeting. Despite financial volatility, investor Alejandra Yella views Cardlytics as a potential market leader, emphasizing its scalability and self-service potential for small businesses. The conversation highlights the transformative power of data in shaping future economic and advertising landscapes.

• Cardlytics is at the center of processing an immense flow of financial information, handling billions of transactions daily and trillions of dollars annually.
• The company transforms raw spending data into personalized offers, impacting banks, advertisers, and consumer interactions with financial activities.

"Billions of transactions every single day, trillions of dollars moving around."

• This quote highlights the vast scale of data Cardlytics processes, emphasizing its central role in financial data management.

• The foundation of Cardlytics is built on first-party data and scale, processing over 12 billion transactions yearly.
• This scale gives them insight into $5.8 trillion of annual consumer spending, allowing a highly accurate view of consumer behavior.
• The company shifts from demographic inference to knowledge-based marketing through verified transactions.

"We're talking processing over 12 billion transactions annually. That gives them visibility into something like 5.8 trillion of annual consumer spend."

• This quote underscores the massive scale and reach of Cardlytics, enabling them to predict consumer trends with high accuracy.

• Cardlytics' access to sensitive data is through direct integration with banks, operating on a quid pro quo basis.
• They provide banks with the ability to offer targeted promotions to cardholders, enhancing customer value.
• Trust and data rights are crucial, with a focus on creating products that directly benefit cardholders.

"Cardlytics gets access to the transaction data feed. All right. And in return, they help the banks deliver value back to their card holders."

• This quote explains the mutual benefits of Cardlytics' partnerships with banks, emphasizing the importance of trust and data security.

• Cardlytics is piloting a new approach that connects financial transaction data with retail level data sets.
• This integration allows for more granular targeting and understanding of customer behavior.
• By linking these data sets, they enable advertisers to target based on specific purchase details.

"They believe they've cracked the code to connect both the financial transaction data and retail level data sets."

• This quote reveals Cardlytics' innovative step in data integration, providing deeper insights for advertisers.

• CLOs are a unique ad format where value is delivered instantly and automatically, without the need for coupons or codes.
• Leading marketers are recognizing the value of CLOs, creating specific budget lines for this ad format.
• The format is becoming mainstream, with examples like multi-tier offers from airlines.

"The CEO mentioned leading marketers are actually creating specific budget lines just for CLOS's now."

• This quote indicates the growing acceptance and integration of CLOs in marketing strategies, highlighting their effectiveness and convenience.

• Cardix operates in a competitive market, offering a differentiated end-to-end platform with premium content from major advertisers.
• Despite competition, some banks with internal platforms partner with Cardix for access to premium content.

"There are competitors, but Cardix argues their differentiation is having an end-to-end platform and the most premium offer content from major advertisers."

• Cardix's business model leverages access to vast spending data, providing insights that could influence economic understanding.

• Cardix has access to $5.8 trillion in spending data, offering potential insights into economic trends, though they have limited rights to publish reports.

"With access to 5.8 trillion dollars in spending data, surely that gives them some incredible insights into the economy."

• Retail spending and home improvement spending were up by 6%, while gas spending decreased by 11% due to falling prices, indicating steady consumer activity.
• Delivery services saw a 13% increase, while in-restaurant dining dipped by 3%, showing shifts in consumer behavior.

"Overall, retail spend was up about 6%. Home improvement also up 6%. Gas was interesting. Spending was down 11% year-over-year, right? Prices fell."

• Cardix identifies everyday spending trends as potential economic warning signs, with current data not indicating consumer distress.

"The key thing according to the CEO would be seeing everyday spending, think food, restaurant spending, those essentials right on the edge of discretionary."

• Q1 2025 revenue was $61.9 million, down 8% year-over-year, with billing down 7%, but net loss improved significantly from $24.3 million to $13.3 million.
• Cash used in operations improved, and a $5.4 million gain was realized from divesting the Doach app.

"Revenue was $61.9 million which was actually down 8% compared to the year before. Billings $97.6 million, also down slightly by 7%."

• Cardix engaged in strategic financing, issuing $172.5 million in convertible senior notes and buying back $183.9 million of older notes, resulting in a $13.0 million gain.

"In April 2024, they issued $172.5 million in new convertible senior notes. They used that money to buy back $183.9 million of older, probably higher interest notes from 2020."

• Extended a $60 million loan facility to 2028, providing financial flexibility.

• Rewards programs are now considered essential by consumers, requiring a clear value proposition and ease of earning and redeeming rewards.

"Rewards programs, the CEO said they've become almost table stakes. Pretty much. Yeah. Meaning customers just expect them."

• Airline and hotel loyalty programs are powerful due to their unique position in the market.
• Fixed costs remain constant whether a seat or room is occupied or not, making loyalty programs cost-effective.
• These programs help consumers pay for discretionary items like vacations, fostering incredible loyalty.
• Sometimes, loyalty programs are valued higher than the actual airline.

"They have that unique position. Fixed costs, an empty seat or room costs almost the same whether it's full or empty, plus high switching costs for consumers."

• Loyalty programs leverage fixed costs and high switching costs to enhance consumer loyalty.

• Retail media networks are emerging as a new trend in advertising.
• The current market is fragmented, but consolidation is expected.
• Successful networks rely on first-party data at scale and ease of execution for advertisers.
• Cardlytics' network, Ripple, reaches 130 million unique shoppers and integrates with standard advertising tools.

"It's the sort of new flavor in advertising. But the CEO also pointed out there's a lot of fragmentation right now and they expect consolidation."

• Retail media networks are gaining traction, but face challenges of fragmentation and require consolidation for success.

• Focuses on micro caps, tiny companies often overlooked by others.
• Strategy involves finding specific catalysts for rapid stock price re-rating.
• Differentiates companies into infinite scalers and limited scalers.
• Uses the "scuttlebutt method" for deep research, talking to clients, suppliers, and others before management.

"He focuses on micro caps really tiny companies maybe hundred million market cap sometimes even smaller that he says no one is looking at."

• Yella targets micro caps with potential for significant growth, employing thorough research methods.

• Avoid trusting a large total addressable market if the company isn't a leader.
• Be cautious of sum-of-the-parts valuations, especially in real estate liquidations.
• Do not blindly trust mentors; build your own conviction to avoid panic selling.

"Blindly trusting a mentor without doing the work to build your own conviction. He stresses how important it is to have your own reasons for owning something."

• Personal conviction is crucial in investment decisions to withstand market fluctuations.

• Found Cardlytics through a screener in 2018 and gradually increased his investment.
• Influenced by the company's growing partnerships with major banks.
• Admired Cliff Sosen's ability to project future trends.

"He said most of his buying was between $3 and $6 a share back in 2023. He apparently went bananas buying it."

• Yella's conviction in Cardlytics led to a significant investment, reflecting his belief in the company's potential.

• At one point, Cardlytics represented 40% of his personal portfolio.
• Experienced significant returns in 2023 but faced poor performance in 2024 due to Cardlytics.
• Demonstrates the risk and reward of concentrated investments.

"It was the main driver of his triple digit returns in 2023, but then it was also the main reason for his poor performance in 2024."

• High concentration in a single stock can lead to significant volatility in portfolio performance.

• Cardlytics has developed a unique business model leveraging first-party data to create personalized offers within banking apps.
• The business growth is structured into three stages:
  • Stage One: Building the network by convincing major banks like American Express, JP Morgan, and Wells Fargo to partner.
  • Stage Two: Automating the offer targeting process to make it more standardized and scalable.
  • Stage Three: Introducing self-service capabilities for smaller businesses to create targeted offers, tapping into a long tail of advertisers.

"Stage one, he says, is basically done. That was convincing the big banks to sign up. Getting partners like MX, JP Morgan, Bof, Wells Fargo, US Bank. That major hurdle is clear."

• The initial challenge of onboarding major banks has been successfully overcome, establishing a solid network foundation.

"Stage two is automation, making the offer targeting more standardized a sort of white label product for the banks reducing the manual effort involved making it more scalable internally."

• Automation in Stage Two aims to streamline processes, reducing manual effort and enhancing scalability.

"Stage three is self-service this is where you enable smaller local businesses his example was Tony's Pizzeria from downstairs to log in and create their own targeted offers directly through the platform."

• The introduction of self-service tools in Stage Three allows smaller businesses to independently create and manage their offers, expanding the potential advertiser base.

• Cardlytics aims to emulate the success of platforms like Meta by tapping into the market of smaller advertisers.
• The potential for growth is significant, with self-service models offering scalable revenue opportunities similar to those seen in digital ad markets.

"He points out that something like 80% of Meta's ad revenue comes from these smaller advertisers. If Cardlytics can tap into that market effectively through self-service, he calls it infinite sense, the potential is just enormous."

• The comparison with Meta highlights the vast revenue potential from smaller advertisers if Cardlytics can effectively implement its self-service model.

• The Cardlytics model faces potential regulatory challenges, particularly in regions like the EU due to GDPR restrictions.
• However, the US is seen as unlikely to adopt similar regulations, partly due to lobbying and the mutual financial benefits for banks and Cardlytics.

"He acknowledged that the Cardlytics model probably wouldn't work in the EU because of GDPR data restrictions."

• GDPR poses a significant barrier to the Cardlytics model in the EU, limiting its applicability in that market.

"He made the point that if Cardlytics makes a dollar, the bank partner also makes a dollar and that's powerful incentive for banks to protect the model."

• The shared financial incentives between Cardlytics and banks create a strong motivation to maintain the current regulatory environment in the US.

• The speaker employs a concentrated investment strategy, focusing on a small number of companies with the potential for high returns.
• Positions are typically 5-15% of the portfolio, with a preference for ideas that can command at least 5% of capital.
• The approach involves cutting losses quickly and trimming winners to fund new ideas, contrasting with more diversified strategies.

"His general rule is if he's not willing to put at least 5% of his capital into an idea, it's probably not worth pursuing."

• A focused investment approach is favored, with significant commitment required for each idea to ensure it's worth pursuing.

"He contrasts this with managers who end up building quasi indexes with hundreds or thousands of stocks."

• The speaker criticizes overly diversified strategies, advocating for concentration and selectivity to achieve potentially higher returns.

• The discussion underscores the hidden value in data and the potential for data-driven insights to reshape industries.
• Companies may find enduring value not just in their products or services, but in the data they control and the insights they can derive from it.

"We tend to focus on what companies sell the products, the services. But maybe the real enduring value increasingly lies in the data they control and how cleverly they can unlock its insights."

• The shift in focus from products to data highlights the transformative potential of data-driven insights in creating long-term value.

"Think about it. How might our own data, seemingly small pieces of information on their own, hold collective insights that could reshape industries we haven't even thought about yet?"

• The potential for collective data insights to drive industry change is emphasized, encouraging consideration of data's broader impacts.