Why Cardlytics Stock Tanked by 33% Today
In one of its worst stock market trading sessions of all time, Cardlytics (NASDAQ: CDLX) stock really took it on the chin Tuesday. Investors aggressively sold out of the company, to the point where the digital advertising specialist's shares lost almost 33% of their value. A new capital-raising effort was the reason for the widespread discontent.
New bond issue to raise at least $150 million
Before market open Tuesday, Cardlytics announced that it is floating $150 million worth of convertible senior notes that mature on April 1, 2029. The company also intends to grant the issue's underwriters an option to collectively buy up to an additional $22.5 million worth of the notes.
The notes will pay their interest semiannually until maturity, and if not converted. Cardlytics did not specify the interest rate, nor did it provide the conditions under which the notes can be converted by their owners -- likely one reason behind investors' sharply negative reaction.
The company said it would use the proceeds of the issue to repurchase a portion of an existing convertible senior notes issue. These securities mature in 2025, and have an interest rate of 1%. Cardlytics added that it aims to use some or all of the remainder of the proceeds for "general corporate purposes." These include the funding of working capital and capital expenditures.
A heavy burden either way
As is often the case in relatively large-scale capital raising efforts, Cardlytics investors were surely spooked about potential dilution. If most of the notes end up being converted, the new equity would be quite dilutive -- at the moment, Cardlytics' market cap sits under $600 million. And if not converted to any significant degree, the issue would add quite a pile to the company's total debt of over $266 million (as of the end of 2023).
Should you invest $1,000 in Cardlytics right now?
Before you buy stock in Cardlytics, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Cardlytics wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of March 25, 2024
Eric Volkman 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.
Why Cardlytics Stock Tanked by 33% Today was originally published by The Motley Fool
