Merchant-Funded Rewards Program Developer Cardlytics Seeks More Growth Via an IPO

Cardlytics Inc., which analyzed 18 billion U.S. purchases in 2016 from customers of more than 1,600 financial institutions, last week filed for an initial public offering of stock that it hopes will raise $75 million in gross proceeds to further expand its marketing platforms.

Atlanta-based Cardlytics was founded in 2008 by chief executive Scott D. Grimes, a former senior vice president at Capital One Financial Corp. and the leader of that big credit card issuer’s early decoupled debit card experiment, and chief operating officer Lynne M. Laube, also a Capital One veteran.

Cardlytics reported revenues of $91.9 million in 2017’s first nine months, up 19% year over year, according to a preliminary prospectus filed with the Securities and Exchange Commission. For all of 2016, Cardlytics posted revenues of $112.8 million, up 45% from $77.6 million in 2015.

Like many tech startups, Cardlytics has posted losses since its inception. The net loss attributable to common stockholders for 2017’s first nine months was $21 million versus the $69.4 million loss in equivalent 2016 period.

Cardlytics’ main product, Cardlytics Direct, which accounted for more than 90% of revenues in 2017, provides targeted advertisements for merchants through bank and credit-union online and mobile-banking channels. The company takes in transactional data from the institutions’ credit and debit card purchases, automated clearing house payments, and bill payments, scrubs it of personally identifying information, and formats it for use in highly targeted advertising campaigns.

Using that data, merchants can present offers to customers of financial institutions that have designed cash-back or other card-usage programs. Cardlytics earns a percentage of the purchases by consumers responding to the offers.

“We analyze customers’ purchase history to help predict where they are most likely to shop next,” the prospectus says. “This enables us to help marketers find high-potential new customers that are active in their category, but not currently shopping with them, or to grow their business with existing customers.”

Cardlytics counts as customers 20 of the top 25 U.S. restaurant chains, 23 of the 50 largest U.S. retailers, three of the five largest cable and satellite television providers, and three of the four largest wireless carriers. The company, which also operates in the United Kingdom, claims marketers generated $30 in returns for every $1 of their advertising spending with Cardlytics Direct in 2016.

Financial institutions can also generate revenue and benefit by lower customer attrition when they offer Cardlytics Direct rewards programs with merchants, Cardlytics says.

Cardlytics already has raised $200 million in venture funding over the years, according to the Atlanta Business Journal.

The prospectus gives few specifics about how Cardlytics plans to use the IPO proceeds, and a spokesperson says the company can’t comment ahead of the offering. “We expect to use the net proceeds of this offering for working capital and other general corporate purposes,” the filing says. “We may use a portion of the proceeds from this offering for acquisitions or strategic investments in complementary businesses or technologies, although we do not currently have any plans for any such acquisitions or investments.”

One weak spot in Cardlytics’ business is its heavy reliance on a few large customers. While 2,041 banks and credit unions were on Cardlytics’ platform as of Sept. 30 (only 17 via direct contracts, the rest through processors), Bank of America Corp. alone accounted for 51% of the 53.7 million monthly active users among the client financial institutions’ customer rolls.

Other large customers include the U.K.’s Lloyds TSB Bank plc, and NCR Corp.’s Digital Insight subsidiary. Wells Fargo & Co. is expected to test Cardlytics Direct this quarter with customers in Miami, San Francisco, and Charlotte, N.C.

No date has yet been set for the stock sale. Cardlytics had 337 employees as of Sept. 30.