O/T FAO Pete Waller

[kempo]

Thanks for the heads up on Eagle Eye

I followed the price for a bit and decided to piggyback the upward trend without even knowing what they did!!

I just bought £5K as a speculative buy.

I am amazed that they have continued with a big upward move even following a significant placement announcement at a big discount.

What's going on?....Does someone know about a bid coming?

I know what they do now and note the JL contract ( announced without any financials) but even so the rise is dramatic.

Hope it's not a pump and dump!

[kempo]

Speak to me Pete

[PeteWaller]

Speak to me Pete

Sorry Kempo, I have only just seen your post. You may have realised, I don't come on MM as often lately.

Re Eagle Eye - Hope this helps. The author of the research has a personal holding in the company as well. PART 1 of 2 POSTS

Eagle Eye owns a cloud based digital marketing platform. This is a complete solution that allows a retailer to run the digital equivalent of their paper-based coupon campaigns.
Chief executive Tim Mason says that the voucher and promotion space is the last bit of the “customer markets” to digitise and prospects could hardly be more exciting. There are two key structural growth drivers of Eagle Eye’s offering: growth in promotional marketing/ad spend and digitization of the paper-based market.
In the UK, the number of paper vouchers redeemed in the grocery sector is reckoned to be over 1 billion annually and the promotional market is worth perhaps £55bn per annum. Retailers and consumers are fast moving away from paper and plastic loyalty cards to digital offers but at present, only a small fraction of this spend, less than 5%, has moved to digital promotions and it seems likely that over the next few years, much of this volume is going to migrate that way.

Old Tesco hands
Mason understands the changes in retail marketing because he has lived it, having previously been a board director at Tesco where he was credited with launching its Clubcard. Mason joined Eagle Eye in February as chairman and became CEO in September having originally been brought in by Sir Terry Leahy, who was the CEO of Tesco from 1997 to 2011 and is a non executive at Eagle Eye. Clearly it is their contacts that have been helping Eagle Eye to sell its systems to other retailers at the highest level.
Eagle Eye was established in 2003 and floated on the full list in 2014. Contemporaneous with the float it acquired the business of 2Ergo. This had developed a sophisticated SMS campaign management system, a bit like IMImobile (IMO; 216p), which has featured before on SCSW. This deal was really about giving Eagle Eye a ready made customer list to which it has also been able to cross sell its services.
Revenue has quickly grown from £1.8m in 2014 to over £10.5m expected in the current year. Except for the assets of 2ergo, growth has been entirely organic but as I will describe below, the nature and scale of those revenues is changing.

A complete solution
During the month I met with Mason and finance director Lucy Sharman-Munday. As Mason notes, the company’s software-as-a-service (SaaS) platform, known as Eagle Eye AIR, enables customers to manage the issuance and redemption of digital promotions and rewards in real time, replacing previously used paper-based methods. It is a complete solution that can also be used to create loyalty schemes based on various personalised rules, cash back and gift vouchers (digital or plastic).
Eagle Eye already has a roster of 225 customers. The business had started off selling its systems into the casual dining/hospitality segment (Pizza Express, Greggs, M&B and LaTasca) where data suggests that something like one in three visits involves the use of a promotion or a coupon. That was where the business started off in the early days and since then it has started to gain traction with the tier one grocers. One of these has already gone live (Asda) but two others, Sainsburys and Loblaw, are in the implementation phase and will come on line this year. During the month the company also signed a contract with John Lewis.
By all accounts there is nothing like it on the market, certainly no solution with the same joined-up form. Its biggest competition, says Mason, is “self-build” but only a very big retailer like Tesco really has the capability to do this themselves. Furthermore, Mason explains that Eagle Eye can develop generic applications for a group of retailers so it can sell the most up to date technology to its smaller clients at less cost than if they were developing the software independently.

Market dominated by paper coupons
The promotions market is overwhelmingly dominated by paper coupons that are typically slow, relatively expensive to process, subject to fraud and provide little insight about consumers.
Take the case of Asda, currently the most important advanced Tier 1 customer on the platform. Eagle Eye has been working with Asda since 2015 when it was brought on board (via a global framework agreement with Toshiba Global Commerce Solutions) to eliminate the manual reconciliation of paper coupons and enable the real-time issuance and redemption of coupons and vouchers for Asda-specific campaigns.
As Mason explains, a customer would have previously gone into their Asda store wanting to redeem paper-based coupons against items they may have bought. Once the customer presented the coupon, there is then the whole laborious issue of the checkout girl having to scan it in and put it into the till. These vouchers would then be collected from all the 626 Asda stores and sent to a processing site in Kent and then they would be sent to Poland to be manually reconciled, with the results emerging often weeks or months later. After that, there was all the financial reconciliation of those coupons that had been redeemed.

Eliminates counting costs
An attractive feature of the newly implemented system for Asda is that it allows mistake-free, real-time reconciliation and counting of these coupons. The system is integrated with ASDA’s electronic point of sale (EPOS) systems so that coupons are validated and redeemed at the point of sale.
So how does it work? Stage one of any campaign will be the setting up stage. Using the AIR platform, Asda generates codes or coupons in any format through the use of a “rules based engine.” The grocer may decide to constrain the coupon in certain ways by coding - for instance, making a coupon code single use or multiple use, choosing the location (whether online or in store) and deciding on a time period, among many other variables.
Stage two is the delivery. Promotions can be delivered by both traditional and digital means including email, SMS, iOS/Android app and paper. Most retailers have a whole load of data and big data analytics and by using this they can make each promotion ultra targeted or “hyper personalised” so that they only send the promotion to those it might be relevant to (eg. sending a baby food offer to those customers who have a child who is less than a year old or sending an offer for discounted socks when someone buys a pair of shoes). As Mason notes, the more personalised a campaign is, the more likely a customer is to redeem a voucher.
Stage three is redemption. Based on the rules Asda has set up, coupons can be validated and redeemed in real time by a customer who is either online, at a self-service checkout or through an EPOS device. When a voucher is presented, the Eagle Eye AIR system is automatically able to track which coupons have been redeemed. Once redeemed, data is delivered back to Asda which will immediately know a campaign’s effectiveness and can decide whether the promotion should be altered or halted.

[PeteWaller]

PART 2 OF 2

Long term revenue model evolving
In terms of revenue model, Eagle Eye receives a fee for configuration and implementing its Eagle Eye Air platform with customers. After that it receives hosting and subscription fees from customers for access to the platform.
Now that the implementation phase with Asda is complete, the company should start to benefit from transaction revenue from that deal, which comes from both the issuance of promotions and also a redemption fee on each coupon redeemed. This is the real gravy.
There isn’t much guidance on what the average fee is for each of these but Sharman-Munday notes that around 80% of its revenue is transactional or by subscription and therefore recurring, either contractually or in nature.


Branded could dwarf own promotions
But hugely exciting is that there is also a new revenue stream from “brand campaigns,” which could potentially be a goldmine for the group. Mason explains that these external promotions are run by the retailer in conjunction with a brand owner and given that the big brands dwarf what the retailers spend on promotions, it has huge implications for future growth.
Although it is early days, Eagle Eye’s success with brand campaigns can be seen with the Coke Zero campaign in May 2015. Coke’s ad agency, Mediacom, ran a promotional campaign to give away Coke Zeros using unique digital codes from Eagle Eye across 25 issuance channels at 2,500 real-time redemption points in-store. Asda acted as part of this redemption channel. The ability to do this is a unique selling point of the Eagle Eye offering.
Mediacom was able to track redemptions by both individuals and by channel in real time, enabling it to divert marketing spend to the most effective channel, which resulted in an exceptional 10% redemption rate. That compares to the industry average redemption rate of less than 1%.


Ancillary add ons
Once Eagle Eye Air has been adopted there is often a technology “creep” of other modules to the customer, for instance, in the case of Asda, Asda Money is now also using the platform to enhance loyalty points and cashback on a credit card.
Driven by smartphones and near-field communication (NFC) payment options, transactions are also becoming more seamless for consumers. There are ancillary modules such as Engage, which allow personalised, location-based communication through various channels that can be generated in real time based on known customer data, or for branded product promotions. Last month, for instance, SCSW highlighted how the system is enabling visitors to a M&S cafe to pay for their coffee from their phone with a downloaded digital “coffee stamp card” app that replaces old fashioned paper cards. Then, to increase visitor frequency, for instance, M&S is able to send customers with one stamp left an offer to entice them back in store during a time when trade may be quiet. It holds the patent for redeeming mobile vouchers on Chip and PIN terminals.


AIR now majority of revenue
When Eagle Eye won the contract with Asda, it had underestimated the time it would take to implement the system. These are large deployments and in that case it has to connect to all its tills and was part of a till upgrade programme, the timing of which was out of its control.
At present, Eagle Eye is going through a particularly aggressive implementation phase with two other Tier 1 retailers, Sainsburys and Loblaw, which should allow them to go live in the current year. One vexed question was whether the process involves burning a lot of shoe leather going to all of the stores to install its software. But as Sharman-Munday notes, these days you can connect to the tills with APIs, so all the tills can be upgraded remotely. Given that Asda is part of Walmart and its systems are the same, this opens up the great white hope that Walmart could literally overnight take the system into its 11,000 US stores. If that happens, it’s easy to see the shares blasting off to some lofty price.
There is no certainty of that, of course, but medium term growth looks assured from the existing tier 1s because whereas Asda issues 20m coupons a year, Sainsburys is closer to 200m. Loblaw has scope to be even bigger. At this stage, my understanding is that the scope of these two retailer contracts is not “branded,” but it could clearly become so, paving the way for huge volumes of promotions. John Lewis will still be in the implementation stage for a couple of years.


Targets Europe and the US
Eagle Eye’s first half results in March showed revenue growth, which includes messaging, up 72% to £5.1m.
AIR platform revenue rose 115% to £4.3m, but of course this also includes integration work for both Loblaw and Sainsbury’s (£1.7m up from £0.5m). Recurring revenue represented 66% of the total in H1 17, providing good visibility for future revenue generation, leaving it well placed to achieve Shore Capital’s turnover estimate of £10.8m for the full year with reduced ebitda loss of £1.2m.
It’s clearly early days for this story. Mason’s plan now is to establish the business in the UK and then launch an assault in Europe and the US, the vouchering capital of the world. Europe is being targeted in partnership with Toshiba Global Commerce Solutions whilst the North American presence has expanded significantly following the Loblaw win (c10 employees and two data centres). Overall headcount has grown from 50 to 73 in the past year.
Prospects could be vast if it gains traction in the US market and in branding. In the US, the overall leader in the coupon market is Valassis, which was acquired for US$1.8bn in 2014 after previously being publicly listed in the US and held a 70% market share of the paper couponing market at the time of its acquisition. That gives an indication of the opportunity. I’m a buyer.

[kempo]

Thank for that Pete..

I now know what the business does..

What fool would buy shares in a company without knowing what type of business it is?

[monty_rhodes]

Thank for that Pete..

I now know what the business does..

What fool would buy shares in a company without knowing what type of business it is?

Quite so.