BofA Takes Neutral Stance On Cardlytics, Cites Scaling Concerns

A Bank of America Merrill Lynch analyst is taking a cautious stance on newly public Cardlytics Inc CDLX.

The Analyst 

BofA's Nat Schindler initiated coverage of Cardlytics with a Neutral rating and $19 price target.

The Thesis

Cardlytics has a major growth opportunity to monetize the users of banking apps and websites, Schindler said in a Tuesday note.

The analyst said he is cautious about client concentration, pricing leverage and scaling.

Over 1,600 consumers surveyed suggested positive indicators for consumer interest, penetration and churn of the Cardlytics platform, the analyst said, citing a proprietary BofA survey. The company is monetizing its new, valuable advertising "real estate," Schindler said, but faces obstacles in the scaling of the business. 

Wells Fargo & Co WFC's full launch of the Cardlytics platform, scheduled for 2019, could drive 39 percent year-over-year revenue growth, a significant re-acceleration and diversification of Cardlytic's user base, according to BofA. 

"However, there could be downside if there are any delays or cancellation of the program," Schindler said. 

Although the bull-case long-term EBITDA margin of 25 percent is possible for Cardlytics, a 15-20 percent rate is more likely, the analyst said. 

The Price Action

Cardlytics shares are up about 26 percent since its Feb. 9 IPO.

The shares were up 1.96 percent at $17.13 at the time of publication midday Tuesday. 

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