Snipp Interactive Concerns Linger as Revenues Increase Multifold

In Q4/2017, Snipp Interactive Inc. (TSXV:SPN) reported over US$4 million in contracts, its best quarter of 2017, and the second largest in the Company’s history

SmallCapPower | January 17, 2018: Snipp Interactive Inc. (TSXV:SPN) is an international loyalty and promotions company focused on developing marketing platforms. The Company’s flagship solution SnippCheck, a receipt processing engine, is one of the market leaders for the number of programs and the size of programs that utilize the platform. Over the past year, Snipp Interactive expanded its solutions into Loyalty and Rebates with the launch of Snipp Loyalty in Q4/2016 and the SmarterRebates in Q1/2017, which have expanded revenue opportunities for Snipp.

Although the business of Snipp Interactive topline revenue continues to grow over the past five years, the Company’s bottom line and cash flows continue to be a key concern. In response, Snipp Interactive has reduced its costs while focusing on high-margin licensing and services contracts. As such, the traction in its new Snipp Loyalty and SmarterRebates solutions aimed at multi-billion-dollar industries, should also improve its revenues and help it achieve profitability in the future. In the near term, however, with $0.8M cash, Snipp Interactive may need to raise capital to ensure its operations continue to run smoothly.

Investment thesis

  • Market leader in receipt processing engine – SnippCheck
  • Diversified and recurring revenue model
  • Liquidity remains a key concern

Developing disruptive mobile marketing platforms

Snipp Interactive is focused on developing disruptive marketing engagement platforms that generate insights and drive sales. Over the years, Snipp Interactive has developed a complete technology suite that provides brands the ability to manage their promotions and implement cross-channel loyalty programs.

Complete technology suite for brand promotions and loyalty programs

The Company’s flagship solution, SnippCheck, a receipt processing engine, is one of the market leaders, in terms of the number and size of programs that utilize the SnippCheck platform. SnippCheck is highly customizable and enables Fortune 500 brands and global agencies to utilize programs at scale while offering 100% accuracy in receipt processing. SnippLoyalty, the Company’s other key product, is the only unified loyalty solution in the market for CPG brands.

Diversified and recurring revenue model; elevated bookings backlog continues to drive sales

Most of the Company’s revenue from promotions/rewards, loyalty & rebate solutions, and licensing (API) are generated from long-term and repeat clients. While promotion solutions typically have a high number of repeat customers, loyalty solutions generate long-term recurring revenue from large consumer loyalty programs such as Kellogg, Starbucks and Huggies. About 55% of revenue in Q3/2017 was from recurring components.

Recurring revenues, coupled with increasing new bookings, have propelled the Company’s revenues to a robust 85% CAGR over the period 2012-2016. Booking backlog at Q3/2017 end stood at $5.5M, which should result in strong growth in revenues for Q4/2017.

New product launches to drive future growth

Leveraging its flagship SnippCheck receipt solution, Snipp Interactive expanded into new sectors such as Loyalty and Rebates. The launch of Snipp Loyalty Base in 4Q4/2016 and the SmarterRebates in Q1/2017 are targeted at large multi-billion-dollar industries. Management is particularly focused on expanding its presence in the relatively new and rapidly-evolving CPG/multi-channel loyalty space. Loyalty is a $48 billion industry in the U.S. alone and loyalty management is expected to grow from $1.5 billion in 2015 to $4.8 billion by 2020, which presents a large opportunity for Snipp Interactive.

Snipp Interactive also continues to improve its existing products through technological improvements. In December 2017, Snipp signed an Memorandum of Understanding with Appsolutely Inc. to incorporate its LoyalCoin loyalty solution, a Blockchain based platform, into Snipp’s suite of products. Once the platform gains traction, Snipp plans to implement interoperability between the incentive programs within its system that use the LoyalCoin Blockchain while utilizing this infrastructure to potentially launch its own vertical industry focused coalition programs.

Cautions remains despite reporting positive EBITDA in its third quarter

Despite strong revenue growth, Snipp Interactive is a penny stock ($0.11 on the TSXV) with a market cap of just $20 million. The primary reason seems to be its negative bottom line. That appears to be changing with the cost-cutting measures the management has implemented recently. In 3Q17, EBITDA turned positive and improved over 101% compared to 3Q16, driven by an eight-percentage point YoY improvement in gross margins to 69%, as well as cost reductions. Snipp Interactive continued with its integration and cost reduction exercises post its last acquisition in 1Q16, which has resulted in ~US$2 million of cost savings.

Outlook and valuation

Although the business of Snipp Interactive continues to do well with revenues increasing multifold over the past five years, the Company’s negative bottom line and cash flows continue to be a key concern. As a near-term fix, Snipp Interactive continues to reduce its costs while focusing on high-margin licensing and services contracts. Traction in its new Snipp Loyalty and SmarterRebates solutions aimed at multi-billion-dollar industries should also improve its revenues and hopefully allow it to eventually achieve profitability.

Disclosure: Neither the author nor his/her family own shares in any of the company mentioned above.

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