In the past three years, Points International (NASDAQ: PCOM) has significantly grown its earnings per share at an amazing percentage. In terms of revenue, the issued revenue guidance of $270 million annualized revenue run rate at the end of fiscal 2013 indicates a significant increase in comparison to the same quarter a year ago. Full year guidance for EBITDA on a pre-investment basis is in the range of $17 to $20 million. Also, the company presently maintains zero debt with total cash and equivalents of $50.88 million and a trailing operating cash flow of $21.14 million.
Over the past year, the company's stock has increased approximately 176% and counting. With its pipeline of potential corporate partners and the fact that it operates in a multi-billion dollar market with little competition, the company should sustain this uptrend in the long term.
A brief introduction to Points International
Points International is a Canadian loyalty programs solutions company co-founded in 2000 by CEO Rob MacLean and President Christopher Barnard. The company's business model is based on offering solutions that enhance management and monetization of loyalty currencies that range from hotel points to flyer miles and credit card rewards. Presently, the company has approximately 60 global partners, including Amazon (NASDAQ: AMZN), Air France, Alaska Airlines, American Airlines, British Airways, Cathay Pacific, Choice Hotels, Lufthansa, PayPal, Starbucks (NASDAQ: SBUX) Trident, and Virgin Atlantic.
Over the years, Amazon has been able to turn a higher percentage of its casual shoppers into loyal customers through the use of loyalty programs. One of its loyalty programs entails delivery of products at significantly reduced annual fees. This is one of the major reasons why, as other retailers were significantly feeling the impact of the recession, Amazon increased its sales by over 30%. That is the power of loyalty programs, and Amazon is surely utilizing it.
Starbucks has been able to, through its My Starbucks Rewards, offer its customers the opportunity to treat themselves and others to their favorite items with one quick and easy payment method. Be it pastries or coffee, each time a customer pays with a Starbucks card, the person earns one star per transaction. These Starbucks Stars are then redeemed through Points International's e-commerce platform.
The company's strength
Points International has a lot of fundamental strengths that has positioned it to be a leader in its industry. Listed below are some of them.
- Steadily and significantly growing revenue: In the last three fiscal years, the company has grown its revenues at a CAGR of 20.75%. In the most recent reported quarter, third quarter, the company's revenue increased 59% in comparison to the same quarter a year ago. From the issued revenue guidance for the full year, the company expects over 70% increase in revenues for the current quarter in comparison to the same quarter a year ago.
- Significant increase in annual free cash flow: The trend in the company's free cash flow indicates that it is spending less to fuel its growth. FCF in full year 2010 was $3.2 million and increased over 70% in full year 2011 to $5.4 million. In full year 2012, it increased 124.39% to $12.3 million. In the most recent quarter, the company's levered free cash flow is $19.0 million.
- Significant increase in annual cash from operations: Full year 2011 recorded cash from operations of $7.6 million and increased over 84% to approximately $14 million in full year 2012.
- Strong cash balance: The company's cash and cash equivalents increased 19.8% from $30.239 million in 2010 to $36.202 million in 2011. In 2012, it increased 33.4% to $48.310 million. This puts the CAGR at 26.6%. Presently, the company's cash balance is $50.88 million.
- Zero debt: Points International has zero long-term debt. This puts the company in a position to effectively fund future growths and also enhance shareholder equity in the form of share buybacks.
- Strong corporate leadership: The company's CEO and co-founder, Rob MacLean, has in the past 12 years, maintained leadership roles in both the loyalty industry and the airline industry. Some of the companies under his leadership have won various awards of excellence. Bringing all that wealth of experience into Points International has helped fuel the company's growth.
Long term catalysts to further fuel growth
The No. 1 catalyst is the result of the research carried out by Colloquy, a market research firm. The result shows a steady increase in loyalty program members in the US. According to the research, membership increased 26.7% from 2.089 billion members in 2009 to 2.647 billion members in 2012.
Catalyst No. 2 is the increasing number of new corporate partners in the pipeline. The growth recorded this year in the company's revenue is affected by the increased number of partnerships it went into in the last 12 months and counting.
Finally, the Loyalty industry, according to the company's CEO, is an $80 billion market. To further sweeten the pie is the fact that Points International has firmly established itself as a leader in this market with insignificant competition.
Downsides to the investment thesis
The downsides include:
- Potential termination of one or more of the company's major corporate partnership.
- Downturn in the economy which negatively impacts on shopping and traveling.
- Significant decrease in consumer engagement in the loyalty programs offered by the company.
- Cancellation of one or more existing loyalty programs by any of the company's corporate partners.
While Points International was increasing its cash balance, it also showed that it is shareholder-friendly by the amazing rate at which the company is growing shareholder equity. From full year 2010 to the most recent quarter, there is been reasonable increase in shareholder equity. Although Points International has proven to be a good investment option, investors should also take time to carry out their own due diligence prior to investing in the company.