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August 15, 2016
Research #1
Tactical Technology
Company Details
A money-printing technology
Rockstone wouldn’t wander from mining into the tech space, unless there is an outright
opportunity based on a proven and second-to-none money making growth model,
one that just started to trade publicly but is already poised to take off immediately.
As a matter of fact, Vancouver-based RewardStream Solutions Inc. is on track to
bank revenues of $1.75 million CAD in fiscal 2016, which ends in September.
Is this the end of the line or just a foot in the door? Well, if you have custumers
that evidentially make money in multiples of your invoice to them, you have pretty
happy customers. And happy customers get addicted to you, while others take notice
and want the same – the main ingredients for a viral buzz, as based on a pull rather
than push strategy. There’s nothing more powerful than word of mouth. If you
have a technology that can convert this power into cash, you not only hit a jackpot
but own a pilfer-proof goose perpetually laying golden eggs. If you spend 1 buck a
day on keeping your goose alive and she returns a daily yield of 1 gold(plated) egg
worth $86, you should consider cloning (and if feasible get publicly listed). Basically,
that’s what RewardStream does (and did 7 days ago when it started trading on the
TSX.V under the symbol REW): The company has produced $300 million CAD in
new business for its customers in the last 24 months (now you do the math). The
kind of companies, recurrently streaming this much business from newly generated
customers, have chatoyant names like Envision, Bell, Bark, Sprint, Telus, or Rogers
– and literally have what it takes to spread the word. Alone Boost Mobile adds over
20,000 new customers via RewardStream’s technology each month. Everybody wants
to get rewarded. Loyal shareholders of RewardStream are sure to have catched a
high-profile tech company with a proven track-record and blue-sky growth potential;
in order to be made happy, too, as that’s what the company does. Last Friday, Genevabased analyst Erenik Yzeiraj from asset managing RAMPartners S.A. initiated
coverage on RewardStream, targeting a price of $1.93 CAD per share by next year.
Last recorded price was $0.42 CAD. The word is getting out now. Get rewarded, too.
RewardStream Solutions Inc.
Office 250 - 2985 Virtual Way
Vancouver, B.C. V5M 4X7 Canada
Phone: +1 877 692 0040
Email: dean@rewardstream.com
www.rewardstream.com
Shares Issued & Outstanding: 37,787,115
Free Float: 4,448,603 (12%)
Chart
Canada (TSX.V)
Canadian Symbol (TSX.V): REW
Current Price: $0.42 CAD (August 12, 2016)
Market Capitalization: $16 million CAD
Chart
Germany (Frankfurt)
German Symbol / WKN: JL4L / A2APX1
Current Price: €0.22 EUR (August 12, 2016)
Market Capitalization: €8 million EUR
2
Research #1 | RewardStream Solutions Inc.
M
arketing
experts
know
all to well that the best
recommendation for a
product is happy customers doing
word of mouth marketing.
Conventional advertising congests the
channels, is increasingly perceived as
annoying and tends to lose effectiveness.
Numbers confirm that consumers used
to digest some 500 advertisements
per day in the 1970s – nowadays it’s
more than 5,000 ads a day, still with an
increasing tendency.
Even a giant like Facebook cannot withdraw from this trend of advertisement
dilution: The opening rates of product
specific company news stood at a terrific
30-40% during the first years – by now,
these have dropped to only 4%. Accordingly, the company’s euphoria has been
brought back to earth.
The Vancouver-based software company
RewardStream, which has raised $2.1
million CAD from investors a few days
ago when going public on August 8, is
finally offering a solution for marketing
people.
Clients not only from the telecommunications sector are already booking phenomenal results thanks to the
automated referral marketing technology from RewardStream; and include
Johnson&Johnson, RBC Royal Bank, First
West Financial Services, BC Hydro, AT&T,
Telus, Boost Mobile, Koodo Mobile, or
Cricket Wireless amongst many others.
A jaw-dropping 900 qualified businesses
from the telecommunications and
financial services sectors are currently
in the company’s pipeline. A highly
increased newsflow can be expected.
RewardStream
anticipates
further
growth
especially
with
the
integration of its app in very large
eCommerce platforms like Magento
or WooCommerce. Such integration
will enable the access to thousands of
websites, which cannot afford expensive
marketing programs on its own, not to
speak of developing own systems and
learn about effective tactics over time.
RewardStream is taking advantage of
consumers which react less to “branded advertising“. On the other hand, the
direct referral from a friend – aka word
of mouth – works highly effective. RewardStream has successfully managed
to translate this principle into a software
architecture and offers the simple integration of its app, enabling consumers to
communicate directly to each other.
Experience has shown that the opening
rates of referral email campaigns stand
at a record-breaking 80% (in contrast
to 14% from conventional marketing
emails). About half of all receivers
are actually getting active, again an
exceptionally high number.
The incentive for the recommending
person is lucrative: As the software
is capable of directly assigning a
generated lead, the person sending
its
recommendation
will
profit
instantaneously in case its referral
results in new business. Depending on
the company and the sector, this can be a
discount on the phone bill or a monetary
present. Each marketing department
can decide by itself.
From a company’s perspective, including
its shareholders, success is what
counts the most, followed by an easy
handling and efficiency to produce
revenue. The entire referral process,
including feedback loops and reminders,
is completely automated and easily
integrable into own individual designs.
RewardStream has developed a revenue
model which provides the marketing
clients a low-threshold flat rate of
$2,000 USD for example. Only if this level
is exceeded, success fees are due for
each successfully placed new customer.
It’s especially attractive that the quality
of the customers, which are won with
direct referrals, can be classified as high,
because experience has proven that
loyal customers tend to recommend
others that have a similar profile.
However the strongest argument is the
cost per newly generated customer.
North America’s telecommunications
sector typically incurs costs of $140 USD
or more for each new customer. RewardStream is capable to reduce these costs
to $50 USD and less.
RewardStream is not a typical startup company. The company actually
existed as a private provider as early as
1999 and was financed through private
equity. In the beginning however, the
business model was focused on loyalty
programs for companies. Not until a
new management team took over the
company about 2 years ago, the focus
has been put on referral marketing.
One can say that the company has reinvented itself, yet it was able to build
on its intimate knowledge of customer
needs, and on a greatly enhanced stateof-the-art software architecture.
3
Click on above image (or here) to watch a short video on RewardStream
Source: RAMPartners S.A., Switzerland
The main difference to the old business
model is that from now on continuously
recurring revenues are pursued, whereas
the former loyalty business was more
of a campaign-driven business. Typical
for the business, the margins for the
“Software as a Service“ (SaaS) business
stand at 60%.
For the first fiscal year, which end in
September 2016, RewardStream expects
a revenue of an estimated $1.75 million
CAD. This significant number includes
already some 80% of recurring revenues.
About 70% of the revenues originate
from business in the USA, the biggest
growth market for RewardStream.
Until 2020, the company wants to
generate revenues exceeding $30 million
CAD, with margins that are expected to
be as high as 80%. The industry multiples
currently stand at 6x and as such, a
market value between $150-200 million
CAD appears plausible.
Applause to the share structure of the
company; as it has been designed that
management will own 50% of the company after going public – not immediately but over a period of 3 years. This
represents an enormous incentive to
reach, or even exceed, its corporate
goals; not to speak of providing investors a very low float vehicle to participate
(4.5 million unrestricted shares), potentially without many capital raises in the
future).
Investors who buy RewardStream primarily bet on its management, which
also participated in the financing. CEO
Rob Goehring impresses with year-long
experience as a “serial entrepreneur“.
He was the Chief Marketing Officer at
the public company Tio Networks Corp.
(TSX.V: TNC; market capitalization: $205
million CAD), and a co-founder of Contigo Systems Inc., a private company
successfully sold to Vecima Networks
Inc. (TSX: VCM; market capitalization:
$230 million CAD). So far, Goehring has
raised some $20 million CAD in venture
capital. His goal for RewardStream is
straight-forward:
“We compete directly against the noise in
advertising and want to offer our clients
a way to deliver optimal satisfaction.“
Goehring does not shy away comparing
with other powerful competitors. He believes that RewardStream’s technology
can not only compete with US companies like Marketo Inc. (NASDAQ: MKTO;
market capitalization: $1.6 billion USD)
or Hubspot Inc. (NYSE: HUBS; market
capitalization: $1.9 billion USD), but will
gain market shares directly from them.
It will be interesting to follow at what
valuations RewardStream’s management may get pushed into an exit, in
case RewardStream can continue to
grow strongly.
The team is complemented by a num-
ber of high-profile industry experts with
impressive experience in the fields of
marketing (Neil Parker), Operations &
IT (Devin Redlich, MBA), VP Finance
(Charles Abel, CPA, MBA), Software
Technology (Kevin Cambell, BSCE) and
Sales (Buzz Hemphill).
The average age of management is in
the mid-thirties; for everyone it’s at least
the second or third company for which
they work. Hungry young guns.
Bottom-line: RewardStream offers
a second-to-none opportunity to
participate, from scratch on, in a strongly
growing segment of online marketing.
In stark contrast to most other startups, the business model is already fully
established, running efficiently, and
generating solid and recurring revenues
with formidable chances of additional
growth thanks to additional channels to
be integrated to shortly, besides happy
customers.
I have personally met management in
Vancouver and I am confident that they
can exceed the conservative business
plan by heaps and bounds.
Investors should follow closely a
potentially very strong newsflow going
forward, which in turn will help to spread
the word and may advance it as one of
the most respected stocks in the junior
tech space, primarily thanks to happy
shareholders.
RAMPartners SA
Bvd Georges-Favon 19, 1204 Geneva, Switzerland
Email: info@rampartners.ch
Analyst Email: ey@rampartners.ch
Telephone: +41223108602
Initiating Coverage
Strong Buy
Price at 10.08.2016
CAD 0.41
Price target 12-months
CAD 1.93
52-week range
0.08 - 0.65
Stock InformationStock & Trading
Information
Market Cap (CAD)
15.85 million
Shares Outstanding
38.66 million
Fully Diluted
43.32 million
August 2016
SECTOR: SaaS Referral Marketing Solutions
Software Applications
Valuation and Research Report
RewardStream Solutions - REW
TSX Ticker: REW
Frankfurt Ticker: JL4L
WKN No: A2APX1
RewardStream Solutions Inc. (REW) is a SaaS company specialized in the tactical execution
of referral marketing programs that help brands to acquire, engage and retain new
customers, by leveraging their existing customer base. The company is based in Vancouver,
Canada. It has already penetrated the market and is currently working with prestigious
brands like Virgin Mobile, Wind, Rogers, Boost Mobile, AT&T, TotalProtect, First Calgary
Financials, etc.
INVESTMENT HIGHLIGHTS
Corporate Highlights:
 Recently closed an Amalgamation with
Musgrove Minerals Corp. (MGS) on the TSX
Venture Exchange
Stellar Management Team: highly successful entrepreneurial and
corporate level experience combined in one team
 Major brands like Virgin Mobile, Wind, AT&T,
Rogers, etc. as corporate customers
 Closed 10 corporate customers in the past 6
months and in late discussions to close 9 more
Referral Marketing: most trusted, most efficient, and less expensive
marketing program – cuts through the noise and overwhelm
 CAD $21.2 million projected revenues for 2019
Profitable Business Model (flexible cost structure with scalable
revenues) and High Value Proposition (complete solution tackling a real
need in the market)
REW: CN – 1 Year Price Chart
Market penetrated (with reputable corporate customer base) and on
track to grow exponentially
THE INVESTMENT OPPORTUNITY:
Source: Bloomberg
Considering all factors and arguments analyzed in this report, we believe REW truly
represents a highly profitable investment opportunity at a very attractive current
valuation. Research, analysis and valuation of all possible factors influencing REW’s future
performance represent a solid framework for a potential super-success. Nevertheless, we
would like to attract investors’ attention to the potential risks affecting this investment
opportunity: notably REW’s ability to retain and grow a solid customer base, to generate
scalable revenues and control costs, technology and product risks, market and sector risks
and the ability to obtain required financing. Investors are invited to conduct their own
analysis of the factors presented in this report in order to estimate the profitability
worthiness of this opportunity.
Author: Erenik Yzeiraj, Analyst
10.08.2016
RAMPartners SA
Telephone: +41223108602
VALUATION
Assumptions & Rationale
Revenue
Projection
Growth
COGS
Operational
Expenses
DCF Horizon
Beta
NWC
Peers' Universe
Company Name
1.Shopify
2.Snipp Interactive
3.YuMe
4.Wix.com
5.TubeMogul
6.Rocket Fuel
7.Tremor Video
8.HubSpot
9.Marketo
10.GoDaddy
Average
2016
CAD 1'750'000
2017
CAD 3'000'000
2018
CAD 8'500'000
2019
CAD 21'200'000
2020 - 2026
30% YoY
2026 +
7% YoY
40% of Sales
R&D
10% of Sales
Sales&Market.
35% of Sales
20 Years
1.4
Acc. Rec
13% of Sales
Acc. Payable
4.9% of Sales
Inventory
2.1% of Sales
Non Cash WC
11.5% of Sales
Enterprise
Price
EV/Sales
10.6
1.68
0.31
5.98
1.44
0.26
0.21
8.7
6.16
3.28
P/Sales
11.24
2.27
0.67
6.38
1.77
0.23
0.51
9.22
6.56
3.07
3.86
4.19
Source: Bloomberg
DCF Value per Share:
CAD $2.10
Comps Price per Share:
CAD $1.76
Discounted Cash-Flow Model (DCF): Our DCF model
REW DCF Valuation
attributed RewardStream a value of CAD $2.10 per
EV (Present Value FCF)
CAD 83'246'641
share today. REW has been generating revenues since
Cash
CAD 2'000'000
at least 2013 (only public information available). In
2013 they had revenues of CAD $2.08 million, CAD
Debt
CAD 0
$1.86 million in 2014 and approx. CAD $1.5 million in
Total Equity Value
CAD 85'246'641
2015. Based on our assumptions, REW’s Management
40'657'069
team with its expertize, track-record and the right Shares Outstanding
Marketing & Sales, REW will be able to generate CAD
Value per Share
CAD 2.10
$1.75 million in revenues in 2016. According to the
Management’s projections, which we find reasonable considering the current pipeline, the
company will be able to generate CAD $3 million in 2017, CAD $8.5 million in 2018 and CAD
$21.2 million in 2019. We assumed a year-on-year revenue growth estimation for years
2019-2026 at 30% (industry standards plus a premium for REW’s Management), then by
attributing a perpetual revenue growth of 7% for the second 10 years. We assumed a COGS
level at 40% of revenues, as general industry standards are between 35%-50%. R&D
(software development & enhancement) is estimated to stay steady at an average of CAD
$2 million per year, as REW’s software has low ongoing work requirements compared to
other complex architectures. In order to achieve the optimistic revenue targets, REW will
need to spend 35% of Revenues in Sales & Marketing. Then we estimated the appropriate
risk discount factor for REW at 15% (WACC=10% plus a 5% risk premium for the early
commercial stage). REW has currently CAD$2,000,000 in cash. Hardware depreciation is
assumed at CAD$15,000. Sector-standard Net Working Capital is: Accounts Receivable are
13.68% of Sales, Accounts Payable at 4.95%, Inventory at 2.08% and Non-Cash Working
Capital at 11.45%. We estimated CAPEX at negligible levels for our horizon, as the
necessary expenditures for the operations has been already used in the past. We assumed
the company will need another financing of CAD $1,000,000 (assumed at CAD $0.50/share)
before cash-flow positivity. This will result in a total shares outstanding of 40,657,069.
Comparables - Market Pricing: Our
REW Comparables Valuation
peers’ universe selection criterion was
CAD 35'828'000
Sales
2021
primarily the product/service offered
(SaaS in Internet Marketing) target Median Multiples
EV/Sales= 4.54; P/Sales= 4.79
customers
(e-marketers,
online
Sales*(Sum of Average Multiples/2)
Valuation Model
businesses) and geographical market
Valuation
144'279'356
exposure (North America and Europe).
Companies satisfying these criteria are Shares Outstanding
40'657'069
believed to be influenced by the same
Future Stock Price
3.55
forces and market trends that REW will
15%
be, in our scenario. Revenue based Risk Factor
multiples (EV/Sales and P/Sales) were Price per share
1.76
used for our Comparables model, as an
important portion of SaaS or Internet Marketing companies have negative or insignificant
EBITDA. We averaged (equally weighted) the average EV/Sales and P/Sales multiples and
divided the outcome with the projected number of shares outstanding (40,657,069). That
gave us a future share price of CAD $3.55. We used the same risk factor as in our DCF
model (15%) to discount back to 2016. The target stock price, based on our model, is
CAD$ 1.76.
DCF Sensitivity
Sensitivity Analysis: In order
to get a variation of key
elements to REW’s future share
price, we have decided to
perform a Sensitivity Analysis
for both our valuation models.
For both DCF and Comparables,
the main factors that we
decided
to
vary
are
the
projected Revenues and the
discount Risk factor. We believe
these are the most sensitive
variables. All factors were varied
on the range -40%, -20%,
+20%, +40%.
Variation
-40%
-20%
20%
40%
First 5 Years Revenue Projection
Target Stock Price
1.10
1.60
2.60
3.10
Perpetual Revenue Growth (2026+)
Target Stock Price
1.65
1.84
2.46
3.03
Discount Factor
Target Stock Price
12.37
4.05
1.28
0.85
Comps Sensitivity
Revenues 2021
Target Stock Price
1.06
1.41
2.12
2.47
Discount Factor
Target Stock Price
2.31
2.01
1.55
1.37
We have averaged both valuation models (equally weighted) to compute our final valuation
for REW. The outcome is CAD $1.93 per share. Our price target reflects the successful
breakthrough of REW’s solution in an environment that desperately needs it.
10.08.2016
RAMPartners SA
Telephone: +41223108602
“Referral Marketing is an effective
channel for acquiring new customers”
Source: RewardStream Solutions & Demand Metric, 2016
S&P Advertising Index YTD Performance
S&P Advertising Index
Nasdaq Composite
S&P Composite
Source: Bloomberg
Source: Software Equity Group 2015
GLOBAL INDUSTRY ANALYSIS
How do you manage your Referral Marketing
program?
Overview: Referral Marketing is the disruptive
sub-market of the global Internet Marketing
industry. Referral Marketing relies on the potential
of promoting products to new customers, through
existing customers’ recommendation.
Trends, Facts and Forces: Recent studies have
displayed the tremendous advantages and value
add of referral marketing. A global survey
conducted by Nielsen in 2016 shows that 92% of
Source:
consumers trust recommendation from people RewardStream
they know. Nowadays we are more and more Solutions &
overwhelmed
by
the
over-abundance
of Demand Metric,
2016
advertisement and products. Recommendation
cuts through this noise, quickly and effectively. It
is estimated that a well handled referral program guarantees a response ratio up to 70%
and conversion rates of 0.8-1.5 new customers acquire per active campaign. Referred
customers, as they’re less price sensitive and ready to purchase, they represent buying
with higher profit margins for businesses (estimated at 25% higher). A referral marketing
survey conducted by REW and Demand Metric concluded that 72% of consumers have
made a purchase on recommendation and 52% have recommended.
Opportunities for profitability: Despite highly sophisticated algorithms and databases
that can predict when a customer will make a future purchase, the value of any customer
does not reside only in what that person buys. How the customer feels about it and what
he’s willing to tell others about your product impacts Revenues and Profitability just as
much. Approximately 41% of businesses don’t have a specific referral marketing program
(RewardStream Solutions and Demand Metric,
Implementation plan of Referral Program
2016). 48% manage referral marketing in-house.
Half of the 41% without a program have no
specific plans on the program implementation and
the other half intends to launch very soon. The
main obstacles for marketers is budget, marketing
resources, expertise and executive support – all
surmountable by outsourcing to referral marketing
specialists, like REW. These statistics reflect a
tremendous profitability opportunity.
A very important aspect of referral marketing is
the multiplier effect: referred customers will bring
Source:
in more referred customers if they value positively
RewardStream
the product. While costs are kept under control,
Solutions &
revenues are increasing tremendously.
Demand
Metric, 2016
Market performance: We believe REW’s performance will be influenced by the
same forces shaping SaaS companies’ performance, especially in the Marketing &
Advertisement space. Despite the high SaaS companies’ valuation in 2013 and the following
correction in 2014, SaaS stocks have generally out-performed NASDAQ composite in the
past four years. SaaS growth rates are three to five times those of traditional public
software companies. Companies with
YoY revenue growth of less than 25%
Recent SaaS Index Performance (2014-2015)
have been trading at around 4x
revenues whereas those with YoY
growth of +50% have shown revenue
multiples of around 13x (Bloomberg,
S&P Capital IQ, Morningstar). After
the important decline in LinkedIn
(LNKD) and Tableau (DATA) in early
February 2016, followed by a selloff
in other stocks as well, the overall
sector bounced back and showed
signs of solid performance. Most of
the active SaaS stocks covering the
selloff
were
SalesForce
(CRM)
+3.53%
YTD,
ZenDesk
(ZEN)
+16.26% YTD, DST Systems (DST)
+6.54% YTD and also the best
performing Ebix (EBIX) +67.89%
YTD and Model N (MODN) +23.30%.
10.08.2016
RAMPartners SA
Telephone: +41223108602
COMPANY ANALYSIS
The Referral Marketing Funnel
To what extend do you trust the
following forms of advertising?
Revenue Generation
Business Model: The company’s operations have been generating
+$1 million revenues since at least 2013 (only public information
available). In 2013 REW had revenues of $2.08 million, $1.86 million
in 2014 and approximately $1.5 million in 2015. The decline in
revenues is explained by the shift in technology and positioning the
company went through. From a loyalty program vendor, the company
became a SaaS referral marketing solutions provider. Employing the
SaaS model, REW provides execution and overall management of
referral marketing programs allowing businesses to monetize their
existing customer base by acquiring new referred customers. REW
generates revenues in three ways: Launch Fees, Monthly Fees and
Success Fees. It targets Enterprise (E), Medium (M) and Small (S) businesses. The
Revenue model is straight-forward: Launch Fees of $10k-$20k to setup the program (only
for entreprise); Monthly fees: E [$5k-$10k]; M [$500-$1,000]; S [$99-$199] to keep the
program running with full functionalities; Success Fees: $1 to $25 per new customer or a
percentage of total sales. Basically, REW becomes an outsourcing service for handling the
referral marketing program of businesses, through its SaaS model.
Products & Technology: The software, called Spark, is highly configurable and semicustom. The technology and architecture behind is fully patented and fully compliant with
digital communication law. The marketer does pretty much nothing, the application itself
and REW’s team will do 99% of the work. Along with the software, REW provides a full
range of services: hosting, security, fraud prevention, member care, best practices, built-in
promotion functionalities, reward analytics and dedicated account management. In overall,
REW has two offerings: the software on one hand side and the full range of complementary
services on the other.
Competitive Advantages: It is one of the most complete, time saving, efficient, cost
optimized solutions out there. With a smooth and elegant interface, it offers ease of use to
marketers. It allows any Marketing Manager to highly customize the referral program, to
analyze the results and improve the overall marketing efficiency, all in a highly secure way.
While keeping marketing budget under control and at low levels, the marketer can reach
out to prospective customers cutting through the confusing and overwhelming noise around
consumers. It can rely on REW’s team’s support to optimize the program and generate
warm quality leads to convert into revenues.
RewardStream’s Current Clients
Commercial Stage: REW has generated $300
million in new business for its clients so far. Its
customer base is composed by prestigious brands
like RBC, Sprint, AT&T, Virgin, Wind, etc. In the
past 6 months REW’s team have already closed 10
enterprises and is in late discussion with 9 more.
The company has already penetrated the market
with existing customers and ongoing sales. With
the trust of reputable brands, REW will find it
easier to further develop its business. Its current achievements reflect a solid proof of
concept and market need for its solutions, as well as a successful overall sales effort.
Profitability & Margins: We estimate COGS are comprised of Advertisement & Customer
Acquisition, Software Implementation and Customization, Help Desk Support, Hosting and
Maintenance. Operating Expenses usually concern Overhead (salaries, software
development & enhancement), G&A, Marketing and Sales. REW’s current Gross Margin are
at 60%. We estimate EBITDA and Net Margin should constantly grow to reach the 20% and
15% respectively. The SaaS model in the Internet Marketing space is typically
characterized by high COGS requirements but usually moderate and steady OPEX. We
believe REW’s business model has the ability to generate and expand substantial cash-flow.
Considering the company’s current sales pipeline, cost structure and offerings, projected
margins in this report are realistic.
Ownership:






Management: 16%
Friends and Family: 12%
1 Year Voluntary Pool: 26%
New Investors (Placement): 21%
Existing Investors: 13%
Float: 12%
Capital Structure & Financing: The company recently closed a non-brokered Private
Placement at CAD $0.25/share for net proceeds of CAD $2,028,500. A prior Convertible
Note of CAD $217,488 was fully converted (principal and interest) into 869,954 shares with
1 year hold. 20% of the converted shares were released on Closing of the financing and
every three months there will be 20% more released.
There are currently 38.6 million shares outstanding. The company has 4,057,000 Warrants
at an exercise price of CAD $0.50 and 603,925 others at various prices (historical
warrants). In total, REW has 42,448,040 fully diluted shares. The current capital structure
reflects a solid situation with no substantial obstacles to potential share price appreciation.
10.08.2016
RAMPartners SA
Telephone: +41223108602
MANAGEMENT
RewardStream’s Management Team
Our Management analysis framework is based on Management’s “skin in the game”,
incentives, track-record, reaction to turbulence and business priorities within the company.
 “Skin in the game”: REW’s management team represents the third largest shareholder in
the company (16%). They have participated in the recent financings of the company.
Their personal financial involvement in the company’s equity reflects what every investor
is looking for in a management team: belief and conviction in the company’s success.
 Incentives: Since the amalgamation was closed very recently, there are no publicly
available audited financials up to date yet. Therefore, we cannot derive any executive
compensation policy from the company so far.
 Track-Record: REW is led by a stellar management team. The team brings a combination
of successful entrepreneurial experience (Contigo Systems, Class Software Solutions and
PayByPhone) with corporate involvement (TIO Networks, Sierra Wireless, Contractually).
The current CEO, CFO, VP Operations and VP Product & Marketing have met each other
at their experience within Contigo. Successes and achievements include:
o CEO: designing the strategy of TIO’s payment Wallet (over $1 billion per year in
payments),
o VP Sales: helped grow PayByPhone from start-up to acquisition by PayPoint for $43 million
o CFO: has raised over $20 million for tech and biotech companies
o VP Operations: launched first consumer telematics solutions at Contigo and oversaw full
delivery system at TIO Networks
o VP Product and Marketing: brought successful products to market for Glenayre, Infowave,
Sierra wireless, Vision Critical, Contigo and Contractually.
o Software Architect: Software Engineer at CAE and OpenText
With this successful track record rich in marketing, sales, technology and business
expertise, REW’s team is on the right track to make REW its next success.
 Reaction to turbulence: The combination of entrepreneurship with corporate background
gives a management team the necessary creativity and discipline it needs to react to
external and internal pressures. With the existing business complexity, markets’
volatility, investors’ impatience, customers’ unpredictability and constant commercial
environmental change, we almost always need to see experienced grey hair alongside
with hands-on adventurous dynamism. The current team has what it takes to handle
potential problems.
 Business priorities: Our research indicates that REW’s executives do not currently hold
any executive positions in any other project or company. Therefore, their time, energy
and focus are fully dedicated in providing revenue growth, profitability and shareholder
value.
We conclude that REW Management has the necessary skills, ability, devotion, focus and
“skin in the game” to do everything in their hands to make this project work.
Management Analysis:
Our in-house model shows that management has the
necessary skills, ability, devotion, focus and “skin in
the game” to do everything in their hands to turn
RewardStream into a big success and ultimately
provide value for shareholders.
10.08.2016
RAMPartners SA
Telephone: +41223108602
Disclaimer
Copyright 2016 RAMPartners SA. All rights reserved. This report has been prepared and issued by RAMPartners. All information used in the publication of this report has been
compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this
report represent those of the analyst at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain
categories of investors. RAMPartners does not offer or provide personalized advice. We publish information about companies in which we believe our readers may be interested
and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any
manner whatsoever as, personalized advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as
RAMPartners’ solicitation to effect, or attempt to effect, any transaction in a security. This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities
mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in
any securities mentioned or in the topic of this document. RAMPartners has a restrictive policy relating to personal dealing. RAMPartners does not conduct any investment
banking business with the company and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers,
employees and contractors of RAMPartners may have a position in any or related securities mentioned in this report. RAMPartners was not compensated for this report.
RAMPartners or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can
fall as well as rise and are subject to large and sudden swings. In addition, it may be difficult or not possible to buy, sell or obtain accurate information about the value of
securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain
information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties
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without taking into account the particular financial situation or goals of any person). To the maximum extent permitted by law, RAMPartners, its affiliates and contractors, and
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report and do not guarantee the returns on investments in the products discussed in this publication.
10.08.2016
August 2016
RewardStream
Inc. REW.TSXV
‘Pioneering the
Referral Marketing
Space’ Inventure Capital Markets
Gurinder Sandhu
RewardStream Investment Opportunity
RewardStream specializes in the tactical execution of referral marketing programs that help brands to acquire,
engage, and retain customers. The company’s platform uses innovative marketing insights and proprietary
technology to turn the existing customer base into a powerful new sales channel for clients. To put this into
perspective, RewardStream has acquired $300M in new business for clients in two years. Given the importance
for companies to acquire new customers in an overly complicated marketing space, RewardStream presents a
proven and innovative way to ‘Rise above the Noise.’
According to Yankelovich Consumer Research:
“We’ve gone from being exposed to about 500 ads a day back in the 1970’s to as many as 5,000 ads today.”
Why Referral Based Marketing?
The main reason for the success behind referrals and RewardStream is:
Recommendations Build Trust + Drive Action
Consumers are 4x more likely to buy when Recommended by a Friend
RewardStream Successes
RewardStream has focused on securing clients in the Telecom, Financial Institution, and E-Commerce industries.
Key customers include AT&T, Telus, Boost Mobile, Rogers, WWE, Envision Financial, and more.
Key Statistic: Boost adds over 20,000 new customers via RewardStream each month.
Drove over 900 Qualified or higher leads in last 6 months
Delivered $300 million in new business to our clients (and counting...)
Over $1.7M in new annual recurring revenue in pipeline
Go-public fundraising proceeds of $2m proceeds could result in a 3 to 4x increase in sales funnel within 2 quarters
On target to close over $1.75M in revenue in Fiscal 2016 with over $1.4M in
recurring revenue and 60% gross margins
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Referral Marketing Industry
A recent survey by RewardStream showed that 71.9% of people surveyed had purchased something which was
recommended to them by a friend – and with 88% of marketers believing that referral schemes help them to acquire
new customers, it’s no surprise that nailing a great referral program will help to underpin many a successful
marketing strategy.
Dropbox, for example, built their user base from 100,000 to 4,000,000 in 15 months, by offering a bonus of extra
storage space to anyone who referred a friend – that’s over 250K new users a month on average. The Dropbox
referral campaign was influenced by Paypal, who led the way by offering a cash reward, and gaining 7-10% daily
growth in the early years of their business.
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Why Referral Marketing - Trust
With a small cost to the marketer and a high potential for reward, referral marketing can deliver one of the highest
returns on investment by leveraging your most loyal customers to become active brand evangelists.
Direct incentives (gift cards, discounts, free prizes, etc.) were the most popular incentives among a survey group,
with more than 60% of respondents saying they would be at least “somewhat more likely” to refer a friend if they
received something tangible or of monetary value in return.
However, when a referral marketing program is
working, it’s found that it has the lowest cost per
customer acquisition of any marketing strategy.
More importantly, referral customers bring
robust value to businesses. A Harvard Business
Review study looked at a German bank to assess
the value of clients attained through their referral
marketing program. The study found that
customers who came from referrals were 18%
more likely to remain with the bank indefinitely
and would generate 16% more in profits than
non-referral clients.
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Perhaps the best part of the referral process is that it can repeat over and over again. If referred customers are more
loyal and valuable than other types of customers, then they are also top candidates for being referrers themselves.
As a result, over time, referral marketing can slowly improve the quality and loyalty of your entire customer base.
RewardStream’s Value Proposition
RewardStream encourages companies to look at their current marketing tactics and the conversion rates of each.
RewardStream then shows how companies can get, on average, 35% more new customers with minimal extra
investment. Also, these customers are expected to be more loyal to the brand, more likely to stick around for years,
more liable to spend money on products and services, and more likely to refer their friends and family members
to the business. Most companies would take the opportunity to apply those numbers and analyze the trends to their
bottom line.
Word of mouth marketing (WOMM) is one of the oldest forms of referral marketing, and optimizing its conversion
rate has been a business priority for centuries.
RewardStream’s referral programs track many different metrics for customers, including:
 how many existing customers were attracted to the program to become advocates
 how many people (advocates) make a referral (and how many referrals they make)
 how many leads are generated (potential new customers who have been referred) and finally …
 how many actual new customers are generated from the program.
Statistics on other forms of Online Marketing:
According to the direct marketing association, the median return on investment for digital marketing methods
ranges from 6% for internet display ads, to 23% for email marketing.
The click-through rates of display ads is reported to be around 0.17%. That means companies’ ads needs to reach
588 people for one to click through. Pretty abysmal conversion.
Average email click through rates are around 3%, meaning companies need to reach about 33 people for one to
click through. And then, those that do click through still need to make a purchase decision, which further dilutes
the conversion rate.
Key RewardStream Referral Program Questions:
1. How many people do I need to attract to my referral program in order to generate one new customer?
o
Snapshot: 4:1 average

This means that across a sampling of clients (across industries), on average they attracted
4 potential advocates in order to generate a new customer.

This is an average conversion rate of 25%
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2. How many people do I need actually making referrals (customers who became advocates) in order to
generate one new customer?
 Snapshot: 2:1 average
 Across that same sampling of clients/industries, they generated an average of one new customer for
every two advocates who made a referral.
 This is an average conversion rate of 50%
Other Key Referral Marketing Metrics:
 92% of consumers around the world say they trust earned media, such as recommendations from friends
and family, above all other forms of advertising.
 84% of global consumers say word of mouth is the most trust worthy source of product
recommendations.
 77% of consumers are more likely to buy a new product when learning about it from friends or family.
Why Referral Marketing Fees are lower than Traditional Methods
A recent study from Demand Metric indicates that 71% of marketing professionals feel that referral marketing
fees are lower than most traditional customer acquisition methods.
We continue to be oversaturated by
traditional and digital marketing methods that
advertisers employ.
The fact is, the more of those messages seen,
the more those messages are irrelevant to you.
The marketers who created the message
aren’t likely people that you know personally;
there are many degrees of separation between
you, the audience, and them. This separation creates a gulf that must be crossed with some form of familiarity.
Hence the performance of these wide-gulf marketing programs is poor, while the costs can be relatively high.
When the marketer is someone you trust, someone you know personally, or perhaps even someone you love,
that marketing message suddenly carries more importance.
This is the heart of referral marketing, and it occurs when the recommendation to buy a product or service comes
from someone who is separated from you by only one degree; someone you know personally. And, perhaps not
surprisingly, referral marketing fees are well below the average cost of other methods of customer acquisition.
Value of Referral Marketing Example:
A company is trying to acquire a customer who will spend $25 per month on a subscription service. Let’s say
that the average client has a lifetime-value of 3 years, or $900 to the business.
Let’s say that the company generated a direct email campaign to reach that customer, and converted
successfully. Market statistics say that it will have cost an incremental $775 in advertising fees to acquire that
one customer.
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However if one of the existing customers, already happy with the service, recommended a friend, and that friend
signed up, the costs would have been significantly lower. In fact, for the cost of the referral marketing program
itself, as well as paying a small reward to the referrer and the new customer, net incremental costs would be
closer to $75 in referral marketing fees, or about 90% less than traditional methods. Referral marketing will also
provide the lowest cost per acquisition that will provide 15x the conversions of email, affiliate, site visits, or
keyword searches.
92% of people trust recommendations from their friends and family over all other forms of advertising.
According to Ken Krogue, the President of InsideSales.com:
A direct referral lead is “36 times more valuable than a lead generated by a cold call, ten times more valuable
than a trade show lead, and four times more valuable than a web lead.”
RewardStream & Financial Institutions
How Does Referral Marketing Fit In?
Rewardstream’s current Financial Institution clients share these traits:
 They are very modern but have a limited proven track record
 They are quite niche
 They target a specific market – one that tends to skew young, is tech savvy and open to risks but tends to
be marginalised by traditional financial services
 The institutions involved are also open to risk-taking behaviour
 Service providers are deliberately going after disenfranchised markets
 Referral marketing has also proven to be a very successful customer acquisition tool within industries that
have a small or specialized customer base.
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RewardStream & Telecom Companies
One of the biggest challenges facing telecommunications services today is churn—the intense competition to
keep customers while also enticing dissatisfied customers away from your competitors.
RewardStream’s referral program makes it easy to motivate customers and employees to refer their friends and
family and, then, to reward everyone for participating.
Testimonial from Boost Mobile:
“A year since launching the Spark referral program, we have seen continued growth in the number of new
customers. The referral program has proven to be a powerful way for our customer base to share Boost’s
attractive deals and pricing with their friends and family members.”
“The referral program has proven to be a powerful way for our customer base to share Boost’s attractive deals
and pricing with their friends and family members.”
Boost’s New Customers growth with RewardStream Platform:
RewardStream’s New Client Acquisition in last Six Months:
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RewardStream’s Growth Engine will mainly be from E-Commerce
Significant growth will come from making the referral platform available as an “app” in existing platforms that
serve millions of businesses which Magento and WooCommerce already in development. There are many online
application plug-ins which quickly achieve around 5,000 E-commerce with no marketing, and in a short period of
time. Given RewardStream knows marketing, it is exciting to track how fast the platform rolls out to the Ecommerce Ecosystem with marketing and a great push from the RewardStream team. This can result in quick scale
and quick revenue increases.
Capital Markets Info (REW.TSXV)
Unrestricted Float: 4,448,603
+ Friends and Family: 4,500,000
+ 1 Yr Voluntary Pool, from Investors: 9,708,818
+ Non-Insider 3 Yr Escrow: 5,016,184
+ Mgmt/Insider 3 Yr Escrow: 5,999,510
+ Private Placement @ $0.25, raising $2,028,500: 8,114,000
= Total Issued POST Closing: 37,787,115
+ Warrants @ $0.50, adding a potential $2,028,500: 4,057,000
+ Historical Options, various prices: 603,925
= Total Fully Diluted: 42,448,040
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Share Price as of August 8th, 2016: $0.38
Market Capitalization: $14.36M
Sales Analysis
2014
Sales
$1.86M
Gros s Margins
2015 FY2016
~$1.66M
43%
$1.75M
57%
60%
FY2017
FY2018
FY2019
$3.0M
$8.5M
$21.2M
63%
65%
70%
Dec 31, 2015 (3Mont hs )
Sales
Gros s Margin
436,309
60%
 2016-19 Sales CAGR: 87%
 Current Recurring Revenue: 85% of Current Sales
 Clear increase in gross margins. For the quarter ended Dec.31, 2015, it is impressive to note 60% margins
with healthy revenues.
 Rob Goehring, CEO, and the other seasoned veterans on the management team (below) took over
RewardStream in 2014. RewardStream used to be a one-time service fee company, however, this team has
transformed the company into a recurring revenue, SaaS based Referral Marketing company. In 2015, the
company flash sold the legacy lines and today we see a 85% recurring revenue company with good
consistent cash flows.
Management Team
Neil Parker: VP Product Management and Marketing
Neil has 20 years experience in Product Management and Marketing at companies such as Glenayre, Infowave,
Sierra Wireless, Contigo Systems and Contractually. He has also spent the last 30 years as a semiprofessional
drummer and plays with a number of acts you’ve never heard of, but it keeps him off the streets at night. Neil
just wants to work every day with amazing people to deliver applications that become stitched into the fabric of
everyday life.
Rob Goehring: Chief Executive Officer
Rob is seasoned technology executive with over 17 years of experience leading early stage, high growth, scalable
companies. As the co-founder of Contigo Systems Inc., Rob lead marketing and product strategy for five
different product launches. Rob was also responsible for establishing the company’s B2B channel partnerships
where he built out channel marketing programs, tools and training for Contigo’s independent VAR channel.
Most recently as the Chief Marketing Officer at TIO Networks, Rob led the B2B teams for Marketing, Sales and
Account Management. He was also responsible for the strategy for TIO Wallet - TIO's cloud based digital wallet
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- that processed millions of transactions per month, totalling over $1 billion per year in bill payments via our
self-serve kiosk, over-the-counter, web and mobile payment solutions.
Charles Abel: Chief Financial Officer
Charles is responsible for managing RewardStream's financial operations. He has held financial positions of
increasing responsibility throughout his professional career, for both public and private companies in the high
tech and biotech industries. In his various roles, Charles has raised over $20 million in equity and debt
financings and managed company budgets in excess of $10 million. Charles holds a CGA-CPA designation and
has an executive M.B.A. from Simon Fraser University. Charles was most recently the VP Finance for Contigo
Systems, where he was also responsible for the integration of acquired companies and assisted in the sale of
Contigo to Vecima Networks.
Buzz Hemphill: Vice President of Sales
As the VP Sales for PayByPhone, Buzz helped grow the start-up company to acquisition by PayPoint plc for
approximately $43 million. In the 9 years at PayByPhone, Buzz oversaw growth from 10,000 to over 2 million
transactions a month and from 8 to 120 clients organization in over a thousand locations including the City of
San Francisco, New York City (pilot) and City of Miami.
Previously as the VP Sales of Class Software Solutions ltd., Buzz helped maintain a 35% growth rate and grew
the company to $18 million in revenue. He expanded Class into multiple vertical markets: recreation, City Hall,
universities and YMCA and grew the sales team to twelve people, increased the average deal size by 30%,
averaged 80 new customers annually.
Devin Redlich: VP of Operations
As a senior Operations executive, Devin has spent the past 18 years managing and tooling technology based
organizations for scalability and growth in IT, Customer Support, Logistics, and Service Delivery. Most recently
as EVP, Operations for TIO Networks, Devin led a complete re-architecting of a multi-datacenter service
delivery environment, oversaw a multi-tiered customer support division including overseas call centers, and
managed the operations and logistics of a nation-wide network of self-serve bill payment terminals.
In addition to the oversight and management of operations, Devin has led the launch of a number of major
strategic projects. Most notably, as Director of Operations for Contigo Systems, Devin led the launch of
Contigo’s first consumer telematics solution in partnership with the largest telematics brand in the automotive
industry. Devin is actively involved in all elements of RewardStream Operations, from strategic initiatives to
hands-on involvement in day to day operations.
Kevin Campbell: Senior Software Architect
Kevin is the lead software architect at RewardStream, having designed and lead development of the Spark
referral platform for the last 5 years. During this time, Kevin has designed, developed, and launched successful
loyalty and referral marketing solutions for clients around the world, and has overseen the design and
implementation of core platform improvements, websites, social media integrations, and API framework. Kevin
is a passionate technologist, with deep interest and understanding of software architecture, modern web
frameworks, mobile devices and tech policy.
Prior to RewardStream, Kevin spent time at CAE and OpenText as a software engineer and holds a bachelor’s
degree in Mathematics and Engineering from Queen’s University.
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Appendix: Demand Metric Benchmark Report (June 2016) Key Figures
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DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the
views of equities.com. Readers should not consider statements made by the author as formal recommendations and
should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:
www.equities.com/disclaimer
24
Disclaimer and Information on
Forward Looking Statements:
All statements in this report, other than statements of historical fact should be considered
forward-looking statements. Much of this report is comprised of statements of projection.
Statements in this report that are forward
looking include that RewardStream Solutions
Inc. or any other company or market will perform as expected; that RewardStream will
complete transactions; that RewardStream or
its partner(s) can and will start growing or advancing its technology to other platforms and
customers; that the company can raise sufficient funds for future transactions, developments and other corporate matters; that any
of the mentioned plans, comparisons with
other companies, regions or numbers are
valid or economic. Such statements involve
known and unknown risks, uncertainties
and other factors that may cause actual results or events to differ materially from those
anticipated in these forward-looking statements. Risks and uncertainties respecting
new technologies and software companies
are generally disclosed in the annual financial
or other filing documents of RewardStream
and similar companies as filed with the relevant securities commissions, and should be
reviewed by any reader of this report. In addition, with respect to RewardStream, a number of risks relate to any statement of projection or forward statements, including among
other risks: the receipt of all necessary approvals and permits; the ability to conclude
a transaction to start or continue generating
revenues; uncertainty of future market regulations, capital expenditures and other costs;
financings and additional capital requirements for maintenance, development, construction, and operating of its platforms and
corporation; the receipt in a timely fashion of
further permitting for its legislative, political,
social or economic developments in the jurisdictions in which RewardStream carries on
business; operating or technical difficulties in
connection with production or development
activities; the ability to keep key employees,
joint-venture partner(s), customers and operations financed. There can be no assurance
that such statements will prove to be accurate, as actual results and future events could
differ materially from those anticipated in
such statements. Accordingly, readers should
not place undue reliance on forward-looking
information. Rockstone and the author of
this report do not undertake any obligation to
update any statements made in this report.
Disclosure of Interest and
Advisory Cautions:
Nothing in this report should be construed
as a solicitation to buy or sell any securities
mentioned. Rockstone, its owners and the
author of this report are not registered
broker-dealers or financial advisors. Before
investing in any securities, you should consult
with your financial advisor and a registered
broker-dealer. Never make an investment
based solely on what you read in an online or
printed report, including Rockstone’s report,
especially if the investment involves a small,
thinly-traded company that isn’t well known.
The author of this report is paid by Zimtu
Capital Corp., a TSX Venture Exchange listed
investment company. Part of the author’s
responsibilities at ZimtuCapital Corp. is to
research and report on companies in which
Zimtu Capital Corp. has an investment. So
while the author of this report is not paid
directly by RewardStream Solutions Inc., the
author’s employer Zimtu Capital Corp. will
benefit from appreciation of RewardStream
Solutions Inc.’s stock price. The author also
owns shares of RewardStream Solutions
Inc. as well as shares of Zimtu Capital Corp.,
and thus would also benefit from volume
and price appreciation of its stocks. Hence,
multiple conflicts of interests exist. Therefore,
the information provided herewithin should
not be construed as a financial analysis or
recommendation but as advertisement.
The author’s views and opinions regarding
the companies featured in reports are his
own views and are based on information
that he has researched independently and
has received, which the author assumes
to be reliable. Rockstone and the author of
this report do not guarantee the accuracy,
completeness, or usefulness of any content
of this report, nor its fitness for any particular
purpose. RewardStream Solutions Inc. has
not reviewed all of the content of this report
prior to publication. Lastly, the author does
not guarantee that any of the companies
mentioned in the reports will perform as
expected, and any comparisons made to
other companies may not be valid or come
into effect. Please read the entire Disclaimer
carefully. If you do not agree to all of the
Disclaimer, do not access this website or any
of its pages including this report in form of a
PDF. By using this website and/or PDF report,
and whether or not you actually read the
Disclaimer, you are deemed to have accepted
it. Information provided is educational and
general in nature.
Analyst Profile and Contact
Stephan Bogner (Dipl. Kfm. FH)
Mining Analyst
Rockstone Research
8050 Zurich, Switzerland
+41-44-5862323
sb@rockstone-research.com
Stephan Bogner
studied at the
International School
of Management
(Dortmund,
Germany), the
European Business
School (London)
and the University of Queensland
(Brisbane, Australia). Under supervision
of Prof. Dr. Hans J. Bocker, Stephan
completed his diploma thesis (“Gold In
A Macroeconomic Context With Special
Consideration Of The Price Formation
Process”) in 2002. A year later, he
marketed and translated into German
Ferdinand Lips‘ bestseller („Gold Wars“).
After working in Dubai for 5 years, he
now lives in Switzerland and is the CEO of
Elementum International AG specialized
in duty-free storage of gold and silver
bullion in a high-security vaulting facility
within the St. Gotthard Mountain Massif
in central Switzerland.
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