I’ve seen this before. A solid company doing good B2B business in the tech space, delivering results for much larger companies, growing and doing all the right things, but with a stock seemingly unable to get above water to take in a breath.
I saw it for a year with Acuity Ads (AT.V), an online ad auctioning system which lingered under $1.00 a share for months with consistently growing revenues before finally taking off a month ago from $1.20 to as high as $1.91.
I saw it with Distinct Infrastructure (DUG.V), which keeps expanding and knocking out contracts and bringing in revs and proving it knows what it’s doing, but continually sees its stock linger while kinda competitor, Liteaccess Technologies (LTE.C), which only does one of the things DUG is capable of, just keeps climbing.
I saw it with Pyrogenesis (PYR.V), which makes giant plasma waste treatment and energy creating systems that are approved for use on US Navy battleships, yet the stock just simmers.
I’ve seen it with Poydras Gaming (PYD.V) which finances slot machines in casinos, a moneymaking industry if ever I’ve seen one, but that only recently moved above the share price they had a year ago, which is only slightly less than their share price two years ago, and about 1/3 of what it was a year before that.
Canadian investors have a problem with businesses that do business with other businesses. Rather, they don’t understand it. To me, this is writ large in the stock price of RewardStream (REW.V), a fine little tech company doing good business with giant cellphone companies, financial institutions, and ecommerce vendors.
What they do is turn referrals into new customers. This is a very big deal that every large business faces every day, and that they spend millions of dollars on, often to no avail.
I once asked a VanCity executive how much it cost them to get a new customer, and though she wouldn’t give specifics, she said, “If we literally handed out $100 at the door for anyone who signed up, it would be cheaper than what we often do.”
In the cellphone world, new customer conversation is a manic problem. You advertise so they know you exist. Then you buy their hardware for them. Then you set your prices to reclaim those costs in a year or two, paying interest on your outlays, and your support staff, and the system itself, in the meantime.
To make $900, you might spend $775.
And that advertising, way back early in the process, that’s another tough call. You pay for the ad to be created, workshopped, tested, then you pay a lot to get it out there enough that it gets recognition, then you hope it actually brings people to the store to sign up. If they don’t, you start again, spending many millions more.
So RewardStream comes in on the side of this big mess of customer acquisition hell and says, hey, now that you have the customer, why not use them to get more?
Rewardstream has a system that it plugs into that big client to encourage customers to refer a friend in return for rewards. They’ll allow someone to use emails, social media, mobile alerts, even word of mouth to share their own happiness with the company to others, easily and with a high success rate.
Look, I don’t know if the Koodo luchador would ever get me to try their cell network. I’m damn sure I have no affinity with the fake young adults Rogers uses to try to lure me onto their slow, expensive network. And the Telus animals? I liked them better when they were the Optus animals in Australia, where Telus got them from before claiming all those awards for originality.
But I digress. Cell phone marketing, if you want to attract my business, comes down to price and what I get. I’m not trying to watch Iron Man on the bus or take Instagrams of myself in a cafe in the Ukraine. Just make my phone work and don’t kill me if my kids run up the data numbers playing Pokemon all weekend.
Fido works for me in this respect, and has for years, so when friends on Facebook happen to say they’re looking to dump Bell, I’m open with my suggestion that they follow me. And several have. And I got nada for my troubles.
Rewardstream changes that, they say. They claim a 54% conversion rate on referral leads.
They also point to existing referral programs, usually conjured in-house, which bring a 1.1% success rate on email, a similar ate on keyword marketing, a 5.2% rate on affiliate programs and a 3.7% return on web conversion spending. In contrast, REW.V claims 8 new customers for every 10 referrals you rack up through their system, commonly known by those of us who can do math as 80%.
Their system allows employees to take part, social influencers, sales reps.. they have it set up for social media integration and in-store programs and.. look, it’s good stuff. It’s what big companies often need and don’t know about.
But hey, all of that is useless if you don’t have a customer base, right? And that’s the big stumbling block for a lot of tech companies.
Feh. Johnson & Johnson, Royal Bank of Canada, Cingular Wireless, Sprint Wireless, AT&T, Cricket Wireless, Virgin Mobile, Boost Mobile, T-Mobile, TELUS, BC Hydro, Exchange Solutions, BC Lottery Corporation, CISCO, Nestle, Purolator Courier, Grand & Toy.. and that’s just the ones I took from their website.
That’s an all-star list of vendors. At most tech companies, if you get one of those guys, you’re off raising millions in financing to get the next few. RewardStream already has its list.
So it should be a mega Silicon Valley startup billionaire dream, right? Well, this is where we get to the negative.
People don’t understand. So much so that the RewardStream website has an entire section devoted to education, with webinars and ebooks and infographics and whitepapers and backgrounders and research documents…
Heck, here’s one of the infographics on offer.. caution: It’s a long one.
So. Here you have an important industry that this company is kicking ass in, with A-list customers, with a steady stream of evidence that it works, but even at their pointy end, they’re having to put a lot of back into showing potential customers why they’re worth using.
Investors are suffering from the same issue. I talked about the company briefly a few weeks back when it was at $0.40. It’s put out good news since, launching a program with another credit union and a Hawaii-based telco, and even bringing a former Apple exec to its board.
That new advisor – he’s handled ecommerce at Apple, Amazon, Zappos, Telus and Accenture. And yet, nobody is buying the stock because they don’t get SaaS, and early buyers are selling because they’re not seeing the love. Today you can grab it for $0.285, which I should note is still higher than the private placement price ($0.25) it came to market with.
And therein lies the problem. In a deal where you have folks paying $0.25 to get you to market, it doesn’t matter if you’re at $0.64 (where it opened), $0.40 (where I talked of it) or $0.285 (where it is right now) – it’s an attractive proposition to get out and claim your profits.
Rewardstream has simply been too nice for investors to hold on to. Until now. Now, you’ve had the early money churn out and the new money has lower expectations and the company is still doing what it does and the market cap is a crazy low $10.5 million.
In other words, the chumps have been fleeced and the early money was doing the fleecing. Now what’s left is the actual company doing actual business at an actually good rate.
That equals opportunity. A low cost opportunity.
I don’t tell people to buy or sell at Equity.Guru. That’s not my jam. But I do point out the bleeding obvious when I see it – that a company doing business with phone companies and credit unions has already demonstrated legitimacy, and that might be worth watching.
If you find an ETF based on SaaS (Software as a Service), don’t buy it. It’s a rough business with a high level of ‘explain it to me like I’m 5 years old’ for most investors. It’s expensive to penetrate large companies and sometimes you have to cut deals to get the ball rolling.
But RewardStream? That ball is rolling. The stock, however, is sitting there waiting for someone to notice.
— Chris Parry
FULL DISCLOSURE: No connection to the company at all.