On August 14th, 2019, RIWI Corp announced its Q2 2019 financials. RIWI is a disruptive data collection company based out of Toronto. They use random domain intercept technology. This technology utilizes the infrastructure of the internet to get short surveys in front of any web user. I recently looked at RIWI’s latest investor deck
To give their financials some context RIWI provided 2019 projected growth for their three business lines:
- Global Private Enterprise, “at least 150% growth in 2019″‘;
- Global Security, “sustained revenue growth over the next 5-20 years”
- and Global Citizen Engagement, “management expects its 2019 revenues to exceed 150% of its 2019 revenues.”
These are the revenue projections that management provided and what I am using to judge the company. I also expected RIWI to be profitable throughout 2019. After reviewing the Q2 financials I was definitely disappointed. Let’s look at the results and see how RIWI did in Q2 2019.
RIWI Q2 2019 Revenue
RIWI reported their highest quarter of revenue in company history by making $841,431 USD. In comparison to Q2 2018, this was a 23% increase. For the six months ended June 30th, revenue increased 46% compared to 2018.
23% and 46% revenue growth in comparison to 2018 numbers are a far cry from 150% revenue growth. Not only is revenue growth well off of full-year projections but RIWI’s run of profitable quarters ended in Q2. RIWI had a loss of $151,052. This loss was mainly due to a non-cash share-based payment to non-executive directors of $538,392. Although the share-based payments are a non-cash charge they are still a real expense and I don’t discount them. In order to raise earnings-per-share RIWI has to increase its net income above and beyond the new shares that were issued.
RIWI was profitable for the first six months of 2019 making $84,848.
On the positive side, RIWI still generated positive cash flow from operations of $55,614.
Continued Revenue Growth
RIWI continues to focus on profitable revenue growth in an effort to increase shareholder value. Two-thirds of RIWI’s revenue is classified as recurring revenue. On June 13th RIWI announced an expanded contract in the amount of $780,000 with an existing global security client. It is these types of agreements that I look forward to seeing, expansion of contracts with existing clients. This type of agreement further validates the effectiveness of RIWI’s technology.
In July 2019 RIWI signed two non-exclusive agreements that are intended to increase RIWI’s exposure to new buyers and to diversify their already diverse client base. RIWI signed agreements with a U.S. government-funded foundation based in Washington, DC and a quantitative hedge fund.
RIWI also mentions in their MD&A that they are continuing to monetize their historic, archived, privacy-compliant longitudinal data sets. Although this will likely be a small portion of their overall revenue I am intrigued about its possibility. Sales of preexisting data sets should flow directly to the bottom line and be a nice boost to net income.
In RIWI’s Q2 2019 financials they do not restate their revenue targets showing confidence that they will meet their previously stated goals. RIWI acknowledges there is some seasonality to their business and expects large-sized private and public-sector contracts to be issued in the June-December period.
To further illustrate this point RIWI submitted cost proposals to potential customers in the amount of $3 million. This was all done in the second quarter showing there is still significant interest in their data service.
Q1 and Q2 financials show that there is some seasonality in RIWI’s yearly revenue. Hopefully in the back half of 2019 RIWI can reaccelerate their revenue growth which should result in increased profitability.
RIWI Q2 2019 Operational Leverage
Although RIWI had what I consider a disappointing quarter there is still a lot to like about the company and its business model. RIWI reported their highest revenue in a single quarter while also lowering sales and marketing costs and technology costs. RIWI only spent $11,000 on marketing in Q2 leaving what a lot of room to ramp up sales and marketing to drive revenue growth. I appreciate that RIWI continually reviews the return on invested sales and marketing expenses. RIWI is very cost-conscious which is important for such a small company. Although RIWI’s cash balance is growing they must keep a close eye on every dollar of expenses in order to drive meaningful net income growth.
In addition to lowering sales and marketing costs, RIWI decreased technology costs. Again, in a quarter where they reported their highest ever quarter of revenue, they decreased technology costs. As their revenue continues to grow I expect technology costs will stay flat or possibly decrease in relation to revenue.
RIWI was recognized as the best-emerging provider at the Battle of the Quants Big Data Awards. The Battle of the Quants is an event held for the quantitatively oriented hedge fund industry. This kind of recognition can only help RIWI as they disrupt the data collection industry.
A study published on August 7th, 2019, by researchers from Harvard University provided support for RIWI’s scientific validity. The authors of the report describe why they chose RIWI- “it has important advantages over other internet surveying methods such as internet panels and email-based sampling”
RIWI is encouraging investors to assess their results on a yearly basis. I have no issue with this philosophy and encourage a longer-term view of business results. Many different things can affect a quarterly earnings report. RIWI anticipates an increase in revenue as the year progresses and some signs are pointing that way. Let’s not forget that RIWI has no debt and $3 million in working capital.
Q2 was a disappointment. RIWI will really need to ramp up revenue to meet their lofty projections of 150% revenue growth in two of their three business segments. I am skeptical that they meet these projections since its mid-August and they haven’t announced any new meaningful contracts. Since posting Q2 results RIWI’s share price has retreated to $2.50.
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