Sep 23Liked by Alejandro Yela, Unemployed Value Degen
When you mentioned there is a high chance of company going back in growth mode, is that only due to Amex or you expect advertisers to return after interest rates decline. If the thesis is based on Lower interest rate, what's your view on "higher for longer" inflation which essentially caps how low interest rates can go and can possible rise again. Thanks
By changing to click through payment systems, advertisers can better monitor the outcomes of their campaigns, and that should allow them to increase spending. Also, since banks get so much benefit in the stickiness of customers through this service, CDLX should eventually be able to capture more of the value add. Right now the banks get paid as much as CDLX, but when they calculate the monetary value of customer retention, the banks are receiving much more value add than CDLX. American Express understands this and went without the cash margin, so AMEX margins will be 50/50 split between consumer and CDLX, while the other banks are 33/33/33 consumer / bank / CDLX.
Sep 23Liked by Alejandro Yela, Unemployed Value Degen
These Revenue shares will only be renegotiated when the contract is renewed which I believe is a few years out. We won't see an impact on GP or net revenue until these are renegotiated, however the trend is definitely supportive of better terms for cdlx.
With Meta and Google investing heavily in AI, the advertisers get constant innovation and better products over time. Whilst cdlx does not need to grab market share from these two behemoths that aggressively to succeed, it still poses a challenge to the adoption of this advertising channel. Thoughts on this?
We need to be cautious when discussing revenue sharing, as it's a sensitive topic for all parties involved. However, it’s confirmed that AMEX has agreed to a 50/50 split.
Comparing Cardlytics with Meta or Google is challenging due to their imperfect targeting and MTA pricing models, which generate massive volumes. In contrast, Cardlytics doesn’t require that level of volume because the activation rates for its targeted offers are much higher. Even with AI, it’s ultimately a comparison of quality vs. quantity.
The power that they have to, for example, anyone who has shopped at Lowe's and hasn't shopped at Home Depot can receive a 15% off Home Depot offer, is practically extortion. Lowe's will have to copy the advertising campaign. That kind of power is probably as important as being at the top of the Google search. If, big if, CDLX executes well, this company could go nuts. I think that's why it has so much attention and research, and a lot of frustrated investors watching them flail at execution for the last few years.
Sep 23Liked by Alejandro Yela, Unemployed Value Degen
Actually this kind of discount based competition is what retailers/ brands don't want to get into. If home depot does it, lowes does it too, they both pull customers from each other and net-net both lose. I had a discussion with someone on twitter that mentioned retailers are avoiding this channel due to the above dynamic that they can forsee playing out. We just need one irrational player, but seems like retailers have gone through this in the past and smarted up. Instead of shifting wallet share, maybe real opportunity is just in traditional advertising, but then again they need to compete with Google and Meta
If this were a two-company sector, they wouldn’t take the deal, but that’s not the case here. Using your example, even if all the major companies adopted Cardlytics, they’d still come out ahead because the ones losing market share would be the smaller mom-and-pop shops.
Sep 23Liked by Alejandro Yela, Unemployed Value Degen
Thanks for doing this article and giving your valuable insight into this. The fact that Amex essentially dropped their in-house ads platform to partner with Cdlx is telling of Cdlx's tech moat. However, as you rightly pointed out, there is a lack of entrepreneurial energy, and Sossin is not an activist investor (although it would help to get one in this company).
There is also an interesting dynamic at play here. When users are presented with a compelling offer and more users redeem the offer than what CDLX hoped for (I.e the engagement is higher than they anticipated), they end up having to foot the bill for those offers (aka advertiser/ brands pays fixed amount and benefits more if the campaign is more successful than expected).
From business model point of view, I find this double edged sword rather scary, where doing a better job leads to financial loss. Any thoughts on that? They are transitioning to "dynamic pricing" which probably counters this to some effect. Also intuitively think that anytime they get a new advertiser or improve their tech, they have a possibility to lose some money (reduced margins) until they figure out the conversion ratio so that they can precisely target within the budget.
Thanks for the comment. Please bear with me as I respond point by point:
- AMEX isn’t dropping its in-house solution. Instead, they’re partnering with Cardlytics to complement their current platform, which currently lacks targeted offers. It’s worth noting that AMEX runs the best ads in the market and attracts the highest-spending consumers.
- The engagement model isn't well understood by advertisers who are used to multi-touch attribution (MTA), while Cardlytics charges only for redemptions. As you noted, CDLX is currently updating their pricing model to adopt a hybrid approach. Additionally, they plan to introduce a visual dashboard by Q4, which will give advertisers better insights into their spend.
- New advertisers only increase profitability. However, adding new banks involves additional fixed costs, especially during the ramp-up phase, which can have a notable impact on profits.
Sep 23Liked by Alejandro Yela, Unemployed Value Degen
Thanks for your reply. The visual dashboard has been in the talks for the longest time. Any idea when that is likely made available to advertisers? One of the bull thesis was a DIY platform will allow small advertisers to use cdlx platform, but that too hasn't panned out. Cdlx is still providing a white glove solution.
If advertisers do get a visual dashboard, do you think they will allocate flexible budgets and be themselves responsible for overruning the campaigns?
Medium sized advertisers are more imminent than small advertisers, and medium sized advertisers are 2/3rds of the market. So CDLX's addressable market is about to triple if they execute well.
In theory, the dashboard is expected to launch by Q4 2024 or Q1 2025. Small advertisers present a unique challenge, as the key value Cardlytics offers is insights, which currently require advertisers to spend around $3 million to access. They will get there, but that part of the thesis is at least 5 years away.
"Yes, totally" to the second part of your comment, the new dashboard will enable features like flexible budgets and mid-campaign budget adjustments, which could enhance the overall user experience.
With click through pricing enabled and live monitoring, they should be able to take down promotions when the ad budget is used up. End 2025 to be fully rolled out
When you mentioned there is a high chance of company going back in growth mode, is that only due to Amex or you expect advertisers to return after interest rates decline. If the thesis is based on Lower interest rate, what's your view on "higher for longer" inflation which essentially caps how low interest rates can go and can possible rise again. Thanks
By changing to click through payment systems, advertisers can better monitor the outcomes of their campaigns, and that should allow them to increase spending. Also, since banks get so much benefit in the stickiness of customers through this service, CDLX should eventually be able to capture more of the value add. Right now the banks get paid as much as CDLX, but when they calculate the monetary value of customer retention, the banks are receiving much more value add than CDLX. American Express understands this and went without the cash margin, so AMEX margins will be 50/50 split between consumer and CDLX, while the other banks are 33/33/33 consumer / bank / CDLX.
These Revenue shares will only be renegotiated when the contract is renewed which I believe is a few years out. We won't see an impact on GP or net revenue until these are renegotiated, however the trend is definitely supportive of better terms for cdlx.
With Meta and Google investing heavily in AI, the advertisers get constant innovation and better products over time. Whilst cdlx does not need to grab market share from these two behemoths that aggressively to succeed, it still poses a challenge to the adoption of this advertising channel. Thoughts on this?
We need to be cautious when discussing revenue sharing, as it's a sensitive topic for all parties involved. However, it’s confirmed that AMEX has agreed to a 50/50 split.
Comparing Cardlytics with Meta or Google is challenging due to their imperfect targeting and MTA pricing models, which generate massive volumes. In contrast, Cardlytics doesn’t require that level of volume because the activation rates for its targeted offers are much higher. Even with AI, it’s ultimately a comparison of quality vs. quantity.
The power that they have to, for example, anyone who has shopped at Lowe's and hasn't shopped at Home Depot can receive a 15% off Home Depot offer, is practically extortion. Lowe's will have to copy the advertising campaign. That kind of power is probably as important as being at the top of the Google search. If, big if, CDLX executes well, this company could go nuts. I think that's why it has so much attention and research, and a lot of frustrated investors watching them flail at execution for the last few years.
BASICALLY!
Actually this kind of discount based competition is what retailers/ brands don't want to get into. If home depot does it, lowes does it too, they both pull customers from each other and net-net both lose. I had a discussion with someone on twitter that mentioned retailers are avoiding this channel due to the above dynamic that they can forsee playing out. We just need one irrational player, but seems like retailers have gone through this in the past and smarted up. Instead of shifting wallet share, maybe real opportunity is just in traditional advertising, but then again they need to compete with Google and Meta
If this were a two-company sector, they wouldn’t take the deal, but that’s not the case here. Using your example, even if all the major companies adopted Cardlytics, they’d still come out ahead because the ones losing market share would be the smaller mom-and-pop shops.
Thanks for doing this article and giving your valuable insight into this. The fact that Amex essentially dropped their in-house ads platform to partner with Cdlx is telling of Cdlx's tech moat. However, as you rightly pointed out, there is a lack of entrepreneurial energy, and Sossin is not an activist investor (although it would help to get one in this company).
There is also an interesting dynamic at play here. When users are presented with a compelling offer and more users redeem the offer than what CDLX hoped for (I.e the engagement is higher than they anticipated), they end up having to foot the bill for those offers (aka advertiser/ brands pays fixed amount and benefits more if the campaign is more successful than expected).
From business model point of view, I find this double edged sword rather scary, where doing a better job leads to financial loss. Any thoughts on that? They are transitioning to "dynamic pricing" which probably counters this to some effect. Also intuitively think that anytime they get a new advertiser or improve their tech, they have a possibility to lose some money (reduced margins) until they figure out the conversion ratio so that they can precisely target within the budget.
Thanks for the comment. Please bear with me as I respond point by point:
- AMEX isn’t dropping its in-house solution. Instead, they’re partnering with Cardlytics to complement their current platform, which currently lacks targeted offers. It’s worth noting that AMEX runs the best ads in the market and attracts the highest-spending consumers.
- Sosin has gone activist in the past (https://www.businesswire.com/news/home/20210517005277/en/CAS-Investment-Partners-Sends-Letter-to-At-Home-Group%E2%80%99s-Board-of-Directors). They have board representation (https://ir.cardlytics.com/board-member/alex-mishurov) and very close contact with key members of the company. With this in mind, it comes down to Amit's execution.
- The engagement model isn't well understood by advertisers who are used to multi-touch attribution (MTA), while Cardlytics charges only for redemptions. As you noted, CDLX is currently updating their pricing model to adopt a hybrid approach. Additionally, they plan to introduce a visual dashboard by Q4, which will give advertisers better insights into their spend.
- New advertisers only increase profitability. However, adding new banks involves additional fixed costs, especially during the ramp-up phase, which can have a notable impact on profits.
Thanks for your reply. The visual dashboard has been in the talks for the longest time. Any idea when that is likely made available to advertisers? One of the bull thesis was a DIY platform will allow small advertisers to use cdlx platform, but that too hasn't panned out. Cdlx is still providing a white glove solution.
If advertisers do get a visual dashboard, do you think they will allocate flexible budgets and be themselves responsible for overruning the campaigns?
Medium sized advertisers are more imminent than small advertisers, and medium sized advertisers are 2/3rds of the market. So CDLX's addressable market is about to triple if they execute well.
In theory, the dashboard is expected to launch by Q4 2024 or Q1 2025. Small advertisers present a unique challenge, as the key value Cardlytics offers is insights, which currently require advertisers to spend around $3 million to access. They will get there, but that part of the thesis is at least 5 years away.
"Yes, totally" to the second part of your comment, the new dashboard will enable features like flexible budgets and mid-campaign budget adjustments, which could enhance the overall user experience.
With click through pricing enabled and live monitoring, they should be able to take down promotions when the ad budget is used up. End 2025 to be fully rolled out