Cash-back reward company, Cashrewards Limited (ASX: CRW), are one of the latest fintechs capturing a market of keen online shoppers. The Australian owned and operated company is raising A$65m at an offer price of $1.73 per share, giving the company an undiluted market capitalisation of $136.4m and an enterprise value of $90.6m. The offer is expected to close on November 23, proposing to list on the ASX on December 2.
The company was founded in 2014 by Sydney couple Andrew and Lorica Clarke, shortly after their son was diagnosed with a serious illness which he later survived. In their attempt to create a way to give back to their supporters, the duo created the Cashrewards model which has since helped 7,600 sick children over the past six years. The company also pledged 1% equity to the Starlight Foundation in 2017, which the company can now subscribe to for no consideration.
The Cashrewards platform works by requiring the user to join for free and then linking their Visa or Mastercard to the platform. Users make purchases on Cashrewards.com, through their mobile application, or even in-store with participating stores with the linked card. Consumers are taken from the Cashrewards platform to the merchant platform, where the purchase is tracked so cash-back can be rewarded. Currently, the company hosts over 1500 merchants including eBay, Amazon Australia, Apple, Chemist Warehouse, Dan Murphys, David Jones, Woolworths, and Booking.com. The various and ever changing cash-back amounts can then be withdrawn into the user’s bank or PayPal accounts. The Company has paid a significant $55m to over 800,000 members so far, 125,000 with linked cards.
Essentially the platform facilitates a win for all involved in the transaction; consumers get cash-back on their purchases from which 1% is donated to the Starlight Foundation to help sick kids. Merchants can sell more products through the platform because the offers are more enticing to consumers and they are competing with less competition, additionally merchants only pay once the order is delivered and Cashrewards get revenue via such commissions.
Last financial year, Cashrewards charged merchants on average a 5.4% commission fee payable after the goods are delivered, similar to Afterpay’s (ASX: APT) fixed fee of $0.30 plus 3 – 7%. The commission is recorded as revenue and last financial year accounted for 97% of Cashrewards total revenue. The cash-back element to consumers is included as costs of their business model.
The company is yet to be profitable despite growing their revenue from $11.1m in FY18, to $18m and $17.1m in FY19 and FY20 respectively. The company attributed the decrease in revenue in FY20 from FY19 figures to the pandemic. However, in a strong show of support for Cashrewards, ANZ subscribed to the institutional offer taking a 19% holding in the company.
Of the $65m in funds being raised, $45m will come directly from cash proceeds received from the issue of shares, with the remaining $20m received from the sale of shares by Cashrewards SaleCo Limited. The proposed use of funds raised include $20m (30.8%) to be paid to selling shareholders, $14m (21.5%) for marketing, $8.3m (12.7%) toward working capital, $7.6m (11.7%) towards investing in product tech and platform development. The remaining amounts are to be used for costs of the offer, key employee hires, R&D, and debt repayments.
Ord Minnet Limited and Moelis Australia Advisory Pty Ltd are both acting as Underwriter and Joint Lead Manager on the offer.
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