Subject: Smallcap Discoveries - New Company Report: RIWI Corp (RIW:CSE)

Smallcap Discoveries
New Company Report: RIWI Corp
RIW:CSE / RWCRF:PINK
Introduction

Imagine for a moment you can predict the outcome of major global events. 
 
You know who will win the next U.S. presidential election. The outcome of the Brexit vote. You know how consumers will react to the next Apple product launch. 
 
Would that information be valuable to you as an investor? 
 
Now imagine you manage a multi-billion dollar hedge fund. Or a global bank with trillions of dollars in assets. How much more valuable would that information become?
 
The answer of course is extremely valuable. But until now, firms have had to answer these questions with surveys that are at best – biased – and at worst – hopelessly flawed.  
 
Enter RIWI Corp (RIW:CSE / RWCRF:PINK), an undiscovered technology company out of Toronto. Their breakthrough technology is able to randomly survey all over the world at enormous scale and efficient cost.
 
And most important, their predictions are dead-accurate. They predicted Donald Trump’s victory. Six of the eight US primaries. The list goes on and on. 
 
This unmatched track record has gathered interest from the world’s premier brands, financial institutions and government agencies. And with each successful prediction, that interest is turning into lucrative recurring revenue contracts.
 
With a massively scalable model and disruptive technology, we feel RIWI is one of the most exciting, and least discovered, investment opportunities we’ve seen in a long time.  
 
Business Overview
 
While browsing the web, have you ever misspelled the website you were trying to access? 
 
Everyone has at some point. And usually you arrive at a blank site that prompts you to fix the web address to continue browsing. 
 
Now imagine instead of an error message, the page asks you to rate your feelings towards the recent US-China trade war tensions. 
 
Your mind fills with curiosity, wondering how you got to this page in the first place. Under the comfort of anonymity, you share your views and click submit. 
 
The page disappears forever. Your personal information is untouched. No thank you page or Amazon gift card offer is displayed. 
 
This is how RIWI’s Random Domain Intercept Technology (RDIT) works. The technology was first developed at the University of Toronto to tackle a unique challenge from the Ministry of Health.
 
The H1N1 virus was spreading and the Ministry of Health needed to act quick. Which messages would resonate? Which would get civilians to act quick?
 
RIWI was able to quickly survey and find the best global messages for disease prevention.Their work saved lives. 
 
And so they wondered... how else could we use this technology? 
 
Turns out there’s almost no limit to the power of what they built. 

The RIWI Advantage
 
RIWI’s RDIT technology solves the biases and flaws that plague conventional survey methodologies. 
 
Compared to competing methods, RIWI’s RDIT wins by being:
  • Random. Clients are chosen purely from random behavior during the interaction with their browser’s URL bar. There are no biases introduced while defining populations to survey.
  • Global. RIWI can – and has – surveyed in 224 countries. That’s almost every country that exists, including restricted ones like Nigeria, Egypt, and China. RIWI can even target to the city level and sometimes even more granular than that.
  • Cost effective & scalable. Traditional surveys cost millions to find participants and incentivize them to take the survey. RIWI’s surveys incur only server costs and domain licensing fees – so they’re a fraction of the cost. 
  • Anonymous. The user has no context for the survey and thus feels safe behind anonymity. This is important for getting accurate reads on sensitive topics like cannabis legalization and same-sex marriage. 
  • Privacy compliant. RIWI does not collect or sell any personally identifiable information (PII) like email addresses or zip codes. This is a big advantage with the recent regulatory crackdown on PII collection requirements.  
  • Dynamic. Many surveys report only a point-in-time read on sentiment. But opinions change and only RIWI’s technology can continuously monitor to identify these key inflection points.
  • Fast. Competing methods can take weeks or even months to collect and analyze data. RIWI insights are delivered instantly. 
  • Easy to use. Conventional surveys require 15-25 minutes to complete. RIWI’s surveys are designed with ~15 concise questions and require only a single click to submit. This is crucial in a world where over 50% surveys are now taken on mobile devices. 
One of the biggest advantages RIWI has is they can access participants that don’t often – or rather never – take surveys. Over 40% of RIWI’s respondents say they’ve never taken a survey before.
 
Conventional methods are biased by relying on participants who “opt-in” to surveys. They’re non-random and plagued by online and general coverage biases.
 
This is why the American Association of Public Opinion (AAPOR) says it’s impossible to calculate margin of error for traditional methods. 
 
RIWI has built a better mousetrap. And with better data, they generate better insights. 
 
Predictive Results
 
RIWI’s technology is impressive. Their surveys have generated over 1.5 billionvisitors since inception. 
 
But their clients all asked two big questions....
 
Are the predictions accurate? And are the insights real? 
 
Turns out they are. 
 
RIWI has predicted major global events with accuracy no other firm in the world can claim. And that’s landed them coverage in major publications like the Washington Post and Huffington Post.
 
Here are their big wins over the last 7 years:
 
2011 Fall of Hosni Mubarak — RIWI sees the shock event of 2011 nobody in Egypt saw
 
This was the call that put RIWI on the map. 
 
On February 7th, 2011, as anti-Mubarak protesters occupied Tahrir Square, daily RIWI data showed that the Arab street had turned suddenly against Mubarak. Rapid volatility ensued in Egypt.
 
On February 11th, 2011 Mubarak was forced out as President of Egypt. RIWI’s predictive data were presented at the November 2011 CASIS Conference on Security and Intelligence in Ottawa.
RIWI began tracking the race between Mohamed Morsi and Ahmed Shafik in the 13 days leading up to the June 24th, 2012 election, showing daily changes in the vote tied to news. RIWI was the only data company in the world to predict the win.

2015 Turkish Election Results — Prediction in a State where the Internet was Heavily Monitored

RIWI predicted a hung parliament in a Special Edition of the Georgetown Journal of International Affairs on October 28th, 2015 just before the November 1st, 2015 election in Turkey.

2016 ‘Brexit’ Referendum — Predicting the Critical Turnout Indicator that Would Decide the Brexit Vote

RIWI’s crowd forecasts for Prof. Mellon of Oxford University and Prof. Prosser of the University of Manchester found that disengaged voters 40 and under would decide Brexit. 
 
The Brexit experts reported, one day prior to the vote: “[RIWI] results suggest that the Remain campaign is right to worry about weak turnout among young voters.”

2016 US Election — Predicting Electoral College for Trump and the Popular Vote for Clinton

Over 147,000 random Americans offered RIWI forecasts on who would win the 2016 US Presidential Election. Up to election night, RIWI predicted an Electoral College win for President-elect Trump, and for Secretary Clinton to win the popular vote by 1.94% (vs. 2% actual). Clients aware of the prediction leveraged the data for significant gains.
 
Here’s a comment from one of RIWI’s customers following the call:
 
“On the Friday before the Presidential election, I received the strong data-based indication from RIWI that Mr. Donald J. Trump would be the next President of the United States. Despite the counter-signals of almost all the pollsters and pundits, RIWI data had it right. The RIWI signal continued to indicate a Trump win up to and including election night.” – Manny Weiss, Chairman of Marylebone Diversified LLP, London

2016 Italian Referendum — Predicting the Precise Margin of Defeat of the proposed Constitutional Reforms

For clients RIWI correctly predicted the ‘Yes’ campaign would lose by a shocking margin of 18% (+/- 1%) on December 4th, 2016. The scale of the predicted loss – roughly five times as large as predicted by most traditional pollsters – enabled clients to anticipate that the world’s oldest bank would be at the mercy of a state bailout.

2018 Mexican Election – RIWI Predicts Outcome and Engagement

RIWI successfully predicted the landslide election of Andres Manuel López Obrador on July 1, 2018. Of 4,000 randomly engaged Mexicans during the week before the election, 53% supported López Obrador. López Obrador won 53% of the popular vote. 

2018 Apple global growth – RIWI Predicts AAPL Growth Projection ahead of Huge 2018 Q2 May 1st Earnings Report

“BofA/Merrill Lynch analyst Wamsi Mohan says his Global RIWI smartphone survey for July suggests Apple continues to benefit from high customer loyalty as well as multiple avenues for growth, setting the company up for sustainable growth. The analyst reiterates a Buy rating and $230 price target on the stock.”
 
Source: thefly.com, July 31, 2018

2018 US Senate Elections – RIWI Predicts State-Level Outcomes

A private sector client hired RIWI to predict eight of the most contentious Senate races in the November 2018 US midterm elections. RIWI data successfully predicted six of eight Senate outcomes in advance of the elections (including tight races in Florida and Montana), with the other two being too close to call. 
 
Customer Segments 
 
Few of RIWI’s clients are disclosed for competitive and security reasons. But as of 2015, they boasted an impressive list of customers that included:
  • 10 Fortune 500 customers 
  • 2 of the top 15 global market research firms
  • 1 of the top 5 global consumer packaged goods companies
  • 5 of the top 10 global online panel companies
Here are the 4 business lines and most valuable services RIWI offers these clients:
 
Global Finance
 
These clients include large banks with sell-side research, hedge funds, sovereign wealth funds, and private equity firms. 
 
Think of firms like Bank of America Merrill Lynch (BofA), which recently used RIWI to asses electric vehicle purchase intent and attitude towards autonomous vehicles. 
 
These clients are seeking an informational edge to guide:
  • Asset allocation
  • Stock selection
  • Investment due diligence
  • Identification of new trends in frontier and emerging markets
Sell-side analysts also use RIWI insights to inform their research and security recommendations. Here’s how a BofA analyst used RIWI insights to forecast sales at John Lewis, the leading department store in the UK:
This annual predictive analytics market is worth $10 billion annually.

Global Security 
 
G-7 agencies like the US State Department use RIWI data to evaluate things like: 
  • Perceptions of political and security threats  
  • Geopolitical risks and trends in economic indicators
There are huge opportunities available in this market – and RIWI is now eligible for sole-source, multi-year contracts ranging from $1 million to $20 million or more. 
 
On the back of the US Government’s positive review of RIWI’s quality, timeliness, and cost control, the company is optimistic about work in this segment. They expect security work to increase substantially and steadily over the next 20 years
 
This is a growing market in data streams for cyber services worth $1 trillion annually.
 
Global Citizen Engagement
 
G7 agencies like the United Nations and The World Bank use RIWI data in this segment to:
  • Measure the effectiveness and impact of global humanitarian aid investments
  • Track epidemics like H1N1, Zika, and Ebola 
  • Evaluate macro-economic indicators like joblessness, confidence in local banks, and personal indebtedness
  • Track election turnout and opinion in almost any country 
RIWI is now a prime contractor to G7 agencies in this business line and contracts range from $250,000 to $5 million or more.
 
This is a $10 billion annual market for data for monitoring programs.
 
Global Consumer Business
 
This line services global consumer brands and marketing analytic firms. Think companies like Procter & Gamble and General Motors on the consumer side and IPSOS and Nielsen on the analytics side. 
 
These clients use RIWI intel to evaluate:
 
     Intelligence on competitors  
     Brand recognition
     Consumer purchase intent
     New business and product concepts  
     Online purchasing trends 
 
These insights help clients improve their ROI on marketing and product launches and strengthen their competitive position. 
 
This is a predictive analytics market worth $10 billion annually.
 
Business Model
 
RIWI sells data to clients through enterprise monthly, annual and multi-year subscriptions. The subscription includes access to RIWI’s “self-serve” dashboard that the client can use to explore data and insights. 
 
RIWI works with clients to develop and deploy digital surveys on a custom basis. They also work collaboratively with their clients when they uncover insights in their work that could be valuable to the client’s business. 
 
RIWI also sells to other survey technology providers who use them to expose their surveys to new geographies and respondents. RIWI also offers a lead generations service to survey providers who need a large supply of non-habitual survey takers. 
 
Industry
  • RIWI competes in 3, fast-growing sectors in the technology, media and telecommunications (“TMT”) industry: 
  • Global online market research which includes competitors such as comScore and Nielsen ($45.8B market size)
  • Big Data Analytics which includes competitors such as IBM and Palantir Technologies ($31.9B market size)
Market research platforms which include competitors such as Qualtrics ($640M market size)
 
Financials
 
From almost nothing in 2013, revenues have grown exponentially as RIWI has commercialized their technology: 
The financials paint the picture of RIWI’s transformation from a “think tank with a balance sheet” to a thriving global commercial operation. 
 
Zoom into RIWI’s quarterly financials and you’ll clearly see the inflection point:
** Note: the company does not report a gross margin. For this business, we estimate it to be very high (90+%)
 
Revenues grew almost 200% in the recent quarter on the back of recurring revenue contracts with large global firms. Expenses moderated and RIWI reported their first ever profitable quarter. They delivered an operating margin (37%) few companies outside of Google or Facebook ever could. 
 
Their next quarter will be crucial. Will revenues continue to accelerate? Will they stay profitable?
 
Right now we have one strong quarter. But that’s only one data point. Two quarters make a trend
 
We don’t know where next quarter will fall. But we’re basing growth expectations – and our thesis – on this:

Successful predictions by RIWI over the last 8 years have opened the door to lucrative recurring revenue, long-term agreements. As these are signed, they should grow revenues and earnings at an ever-increasing rate.
 
We are seeing evidence of this already. 
 
This past October, RIWI announced another US$543,000 contract landed from their partnership with a Top-10 international bank. They’ve now landed $1.1 million in recurring revenue contracts from this one client alone. 
 
We’ll continue to watch their progress securing long-term contracts closely. In the meantime, they’re well capitalized with $1.2 million in cash, no debt, and now cash flowing operations. 
 
Valuation & Capital Structure
 
You won’t find a cleaner capital structure:
RIWI has funded themselves over the past 7 years with just a few strategic financings – at much higher prices – from quality investors. The few warrants are priced at $3.48 (expiring September 2019) and relate to the March 2017 private placement. 
 
Share structure tells you a lot about management’s attitude – and this is a team that treats their shares like gold.
 
Here’s the valuation as of the last tick:
On a revenue basis, the stock looks pricey. But earnings are ultimately what matter and because of the big margins and scalable model RIWI has, the stock is much cheaper than it looks at first.
 
Annualizing last quarter gets us a P/E under 20X. For an early stage company with their growth metrics, that’s quite reasonable – if not cheap. And if they can build on last quarter with recurring revenue contracts, you could even see the P/E compress to single digits. 
 
We follow strict criteria to guide what we should buy – and how much we should pay for it. RIWI passes almost every test with flying colors:
Massive growth. High margins. Inflection profitability. Well capitalized. And strong management alignment.
 
These are the type of businesses you can pay up for. So we have a starter position and will look to add as the company executes.
 
This is one of those business that only needs a few things to go right (think big long-term contracts) to suddenly look really cheap. 
 
Risks
 
Here are 3 risks to watch out for:
  1. Government regulation. Web user privacy is a hot button. RIWI has avoided intense regulation so far by not collecting personally identifiable information of any kind. But if government regulation was expanded to survey opinions, RIWI could be forced to change their model.
  2. The economy turns south.Many of RIWI’s clients – especially banks and consumer product companies – are dependent on the health of the economy. As market research is usually the first budget cut in a downturn, RIWI could take a cyclical hit. 
  3. RIWI’s technology is challenged.The RDIT technology is the secret sauce and core of the company. They must continuously invest to fight off competing technologies all while watching infringement on their core patent. 
Management & Insiders
 
RIWI is tightly held. And by tight we mean really tight. 
 
Insiders own over 80% and the float is virtually nonexistent:
At the helm is CEO Neil Seemen, also founder of the company. Neil invented the RDIT patent while doing pandemic surveillance research while at the University of Toronto. Neil is a former lawyer and accomplished academic researcher with over 25 peer-reviewed journal papers. 
 
Neil has led RIWI’s commercialization and secured high profile investors like Ross Beaty and Robert Pirooz, both billionaire Canadian mining tycoons. Ross Beaty founded Pan American Silver (PAAS), a mining company now worth over $2.3 billion. 
 
Insiders already own a lot of stock. But they’ve been buying more in the market – even at prices 25% higher than current levels:
We always like to see an incentivized management team – especially one buying more with their own money. 
 
Conclusion 
 
These are the opportunities that don’t come around often. Here we have an innovative company doing all the right things – disruptive technology, triple-digit revenue growth, huge margins – and yet, it’s completely undiscovered. With a massively scalable model and growing list of premier clients, we think this company has multi-bagger potential many times over.
 
We’re long and actively looking for opportunities to buy more.
 
Disclosure: Paul, Brandon, and Keith are long RIW:CSE
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