Needham has downgraded shares of Cardlytics (NASDAQ: NASDAQ:CDLX) from Buy to Hold as the downgrade follows Cardlytics' second-quarter results, which did not meet expectations due to lower billings, marking another disappointing quarter for the company.
The performance continues a trend from the previous quarter, with increased consumer incentives negatively impacting revenue. The firm anticipates these challenges will persist until Cardlytics renegotiates contracts with Financial Institution (FI) partners or enhances the use of engagement-based pricing strategies.
The company's outlook suggests a decline in billings and revenue year-over-year for the third quarter. Additionally, Cardlytics is expected to return to a cash-burn state after having achieved modest profitability in the past few quarters.
The forecast is compounded by the announcement that CEO Karim Temsamani will be stepping down to pursue another professional opportunity, introducing further uncertainty to Cardlytics' future.
The investment firm expressed concern over the consecutive quarters of challenges faced by Cardlytics, particularly the impact of higher consumer incentives on the company's revenue.
The firm's decision to downgrade the stock reflects the expectation that these issues will continue to affect Cardlytics until significant changes are made in their contractual and pricing approaches.
Cardlytics' recent performance and leadership change have contributed to the uncertainty surrounding the company's outlook. The transition period as the company seeks a new CEO adds to the precarious situation outlined by the investment firm.
Cardlytics reported a robust start to the year with a 12% increase in billings and a significant rise in adjusted contribution, as well as a positive adjusted EBITDA for the first quarter. The company also raised $50 million in cash and made strategic moves to improve its capital structure.
For the second quarter, Cardlytics is forecasting billings between $115 million and $126 million, and revenue estimates between $73 million and $81 million.
InvestingPro Insights
In light of Needham's downgrade, a closer look at Cardlytics (NASDAQ:CDLX) through InvestingPro provides additional context to the company's financial health and market performance. A recent review of Cardlytics' financials reveals that the company's market capitalization stands at approximately $336.6 million. Despite a modest revenue growth of 5.95% over the last twelve months as of Q1 2024, Cardlytics' challenges are reflected in its negative price-to-earnings (P/E) ratios, with an adjusted P/E ratio of -4.35 for the same period. This indicates that investors are concerned about the company's profitability, aligning with analysts' expectations that Cardlytics will not be profitable this year.
InvestingPro Tips further underscore the volatility and recent downturn in Cardlytics' stock price, which has declined by more than 52% over the last three months. The company's stock price movements have been notably volatile, and it has taken a significant hit over the last week. Additionally, Cardlytics' liquid assets are reported to exceed short-term obligations, providing a buffer in the near term. However, the company's inability to turn a profit over the last twelve months and the lack of dividend payments to shareholders could be points of concern for potential investors.
For those considering Cardlytics as an investment, there are over eight additional InvestingPro Tips available on the platform that could provide further insights into the company's performance and potential strategies moving forward. To explore these tips and gain a deeper understanding of Cardlytics' financial situation, interested parties can visit InvestingPro at https://www.investing.com/pro/CDLX.
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