Please ensure Javascript is enabled for purposes of website accessibility

This 2019 Fintech IPO Is Beating the Coronavirus Market Selloff

By Nicholas Rossolillo - Mar 19, 2020 at 2:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Repay Holdings could help solve a critical need for lenders and business-to-business transactions.

By now, digital transaction and payment platforms like Paypal Holdings and Square are well-known household names. The flexibility to share money between peers and a growing list of e-commerce-enabled businesses that accept them has led to fast-growing consumer adoption. 

While the world has seemingly gone digital, other industries have been slower to move. That's where 2019 IPO Repay Holdings (RPAY 0.86%) comes in. Its service, REPAY (which stands for realtime electronic payments), is tackling under-served digital payment markets like auto loans and mortgages, healthcare, and business-to-business (B2B) transactions.

While I understand the appetite for risk is diminished given current market conditions, the recently public fintech stock's flat performance so far in 2020 is handily outpacing the markets 23% decline year-to-date (as measured by the S&P 500). REPAY is at least worth a little due diligence.

Someone pictured offscreen inputting card information into a laptop.

Image source: Getty Images.

Digital transactions ripe for another disruptive round? 

REPAY plays in what CEO John Morris and CFO Tim Murphy told me in an interview are markets ripe for digital payment disruption. Auto loan and mortgage lenders are still highly reliant on legacy payment systems like ACH (and even written checks!) when handling transactions from borrowers. The same goes for the massive B2B marketplace where trillions of dollars change hands every year.

Perhaps the novel coronavirus pandemic and the rising work-from-home ordinance will help propel this segment of digital payments forward. However, REPAY had a pretty good run in 2019 even before the crisis started. Shortly after becoming a public concern in July 2019, the company acquired Trisource Solutions to improve its back-end software and followed it up with the purchase of B2B digital transactions provider APS Payments in October.  

Largely as a result of the moves, REPAY's card payment volume increased 72% year over year in the fourth quarter of 2019 to $3.4 billion, and revenue (when adjusted for new accounting standards for the sake of comparability) increased 45% to $49.3 million. Gross profit grew 67% to $24.3 million -- a good sign that the small firm is gaining efficiency as it grows. Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) increased 52% to $14.7 million.  

A rosy 2020 outlook

Following up a busy year, REPAY made another acquisition in February 2020: Ventanex, which enables payments for mortgages and B2B healthcare. Morris also said that software vendor integrations are also working well. One notable growth driver is credit unions, which are a sizable provider of mortgage, auto, and other personal loans across the country. REPAY works on Jack Henry & Associates' software platform, where it is beginning to help many regional and small credit unions update their payment acceptance capabilities. 

With many new pieces in place and still active on the merger and acquisition front, Morris and Murphy expect the next year to be another busy one. The guidance provided on the earnings call was for card payment volume to be between $15.5 billion and $16 billion; revenue to be between $155 million and $165 million; and gross profit to increase another 50% at $115 million to $120 million. Adjusted EBITDA would notch a 42% increase based on guidance for $66 million to $70 million.  

One area to watch is how REPAY manages its debt, which ended the year at $198 million. If it can continue to grow and add other high-growth outfits to its ecosystem, this should be a manageable sum. But for now, it's all about those growth rates and helping customers move away from legacy forms of payment. While I'm not personally making a purchase at the moment, I think REPAY is worth keeping an eye on in the year ahead.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Repay Holdings Corporation Stock Quote
Repay Holdings Corporation
RPAY
$12.85 (0.86%) $0.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
317%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.