Moneygram International (NASDAQ: MGI ) is the second largest provider of money-transfer services after Western Union (NYSE: WU ) . The Dallas-based firm primarily caters to people without bank accounts, and its customers largely include foreign workers who are sending cash home.
Started as a small company in 1940, MoneyGram now has twice as many locations as McDonald's, Starbucks, Subway and Wal-Mart combined. According to the World Bank, MoneyGram transferred almost $480 billion globally in 2011.
MoneyGram struggled in 2008, owing to its exposure to the U.S. housing market. At that time, a debt deal with Boston-based Thomas H. Lee and Goldman Sachs helped the company stage a comeback and defy a takeover bid by rival Euronet. MoneyGram's shares have more than tripled since then. Let's take a look at how it's performing compared to its rivals, and what measures it's taken to continue its growth.
MoneyGram swung to a profit in the second quarter with a net income of $19.1 million, or $0.27 per share, compared to a loss of $25.1 million, or $0.35 per share, in the same period a year ago. Revenue for the quarter was $365.1 million, up from $330.1 million a year ago. Revenues from money transfers increased 13% while the transfer volume was up 14%.
Overall, it was a great quarter with the "strongest U.S. outbound transaction growth in more than five years," according to Pamela H. Patsley, MoneyGram's chairman and CEO. The company raised its outlook for 2013 as a result and expects revenue to grow by 7% to 10%.
Western Union's results were far better than analyst estimates. Though its profits declined, this was expected, and the increase in volume compensated a bit. Revenue for the quarter was down 3% while net income fell 27%. For 2013, the company expects cash from operations to be around $1 billion and free cash flow to be around $800-$900 million. Despite the slow performance of most of the company's segments, electronic revenue was very impressive, with a 68% rise that should continue to grow in the coming years.
Xoom (NASDAQ: XOOM ) posted a surprise profit for the second quarter, backed by higher revenues. The company, which issued its initial public offering at a price of $16 a share in February, has seen around a 90% jump in its share price and is currently trading around $30. As a result of the surprise, Xoom raised its guidance for the full year and now expects adjusted earnings between $0.05 and $0.13 per share on revenues of $115 million and $117 million. Previously, the company expected a loss of $0.24 and $0.19 on revenue between $104 million and $106 million. The company's revenues look small when compared to bigger players, but smart pricing and consistent growth will help it expand its market share.
As was announced last October, PayPal customers can now withdraw cash from their accounts at any MoneyGram location. Later this month, PayPal users will also be able to deposit money into their accounts at MoneyGram locations in Dallas, New York, and San Francisco; more locations will be added later as well. The partnership between MoneyGram and PayPal allows customers without bank accounts or credit cards to open PayPal accounts, thus enhancing the customer bases for both companies.
MoneyGram is also working to promote and strengthen its brand following the transfer of its listing from the New York Stock Exchange to NASDAQ. The money transfer specialist entered into a three-year sponsorship deal with Paris Saint-Germain, a strategic move to further popularize the brand in France and globally.
MoneyGram has been ramping up its self-service business by adding kiosks at supermarkets and other locations. To improve the service further, it plans to acquire Burlingame, Cali.-based Nexxo Financial's full-service money transfer kiosk business. After the deal closes, MoneyGram's agents and customers will be able to access its services through the infrastructure of Nexxo Financial, which is available to 15 countries in Latin America.
There have been reports of MoneyGram going private, and that private equity groups like Bain Capital, GTCR, Carlyle Group, and TPG Capital are eyeing the money transfer company. Whether or not this is true, the news is certainly helping the company's shares. If MoneyGram is actually going private, then the sale will surely come at a premium to its trading price and will be very profitable for investors and the company.
MoneyGram is working on many fronts to expand its reach into new markets and penetrate deeper into existing ones. The overall macro environment seems to be favorable for the company with the reviving of developed economies, improvements in the housing sector, and declining unemployment. All of the measures taken by the company and these improving macro factors will surely boost the number of transactions MoneyGram processes, helping the company grow its balance sheet and return money to shareholders.
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