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Shares of advertising-technology (adtech) company Cardlytics (NASDAQ: CDLX) skyrocketed 74.8% in March, according to data provided by S&P Global Market Intelligence. Investors had disregarded this company’s prospects entirely. But its latest financial report surprisingly showed modest growth and improved financials.

Cardlytics’ partners are financial institutions, and the company’s software helps these companies manage loyalty and rewards programs. This allows Cardlytics to have a first-hand view of consumer spending. This valuable information is then packaged for advertisers. And there’s certainly a lot of demand for this.

On March 14, Cardlytics stock skyrocketed when it announced financial results for the fourth quarter of 2023. Monthly active users (MAUs) for its platform were up 7% year over year to 168 million. This user growth led to an 8% jump for revenue.

Moreover, Cardlytics generated cash from operations (CFO) of almost $3 million in Q4. That’s not much, it’s true. But it was massively improved from its negative CFO of $13 million in the prior-year period. The top-line growth and bottom-line improvements shocked investors and sent shares soaring.

Unfortunately, gains would have been far higher — at one point Cardlytics stock was up 144%, as the chart below shows.

CDLX data by YCharts.

On March 26, Cardlytics stock lost roughly one-third of its value after management announced new financing plans. The company priced $150 million in convertible senior notes. And based on reactions, this dumped cold water on investors’ newly found optimism.

Does Cardlytics need the money?

In 2020, Cardlytics raised $230 million with convertible senior notes at a mere 1% interest rate. The problem is that these notes had an initial conversion price of $85.14 per share. That wasn’t outrageous at the time. In fact, Cardlytics stock at one point surpassed $160 per share. But at the current price, reaching the conversion price by the June 2025 expiration date is unrealistic.

Therefore, Cardlytics did need a way to refinance these notes. Its recently announced $150 million offering grew to a $175 million offering. And management quickly repurchased $184 million of its 2025 notes. But investors aren’t thrilled because these new notes have a 4.25% interest rate, and the initial conversion price is only $18.02 per share.

And if these convert by the 2029 expiration date, there is a dilutive effect for Cardlytics’ shareholders.

What does this mean for investors?

In 2021, Cardlytics acquired Bridg for $350 million and, given valuations at the time, likely overpaid. Its previous financing allowed it to make the move. I can appreciate investors not liking the higher interest with the 2029 notes and the potential dilution. But the company is simply working to address a past mistake, and there’s no way around it.

The silver lining is that Cardlytics is moving past this. And management is guiding for modest top-line growth and break-even results on the bottom line in 2024.

Cardlytics will make it through this. Now the question is whether it can capitalize on its valuable first-party dataset with better growth and profits in 2025 and beyond.

Should you invest $1,000 in Cardlytics right now?

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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