The 2021 initial public offering (IPO) market was a whirlwind, with the 1,033 listings for the year setting a record, and much of the growth was fueled by the boom in special purpose acquisition companies (SPACs). But that record number of listings also made the IPO market feel extremely chaotic. With so many stocks making their debut, it was virtually impossible to keep track of everything.
For investors interested in IPOs, it's going to help to focus on the select few listings where the company demonstrates the ability to become a much larger business over the next five to 10 years while its stock trades at reasonable valuations. One example is Remitly (RELY 0.05%). The technology-focused remittance company is growing like a weed, has a large market opportunity, and is trading at a cheap valuation.
Here's why Remitly stock is my top technology IPO to buy in March.
Image source: Getty Images.
What is Remitly?
Remitly is a digital remittance service that allows people to easily send money across international borders. The company serves 2,100 remittance corridors (country-to-country routes) around the world, adding 700 in 2021. It expects to add more and more each year. However, since it is focused on the United States market, the majority of its volume flows through a select few corridors, like the U.S. to Mexico and U.S. to India.
Remitly makes money by taking a fee on the volume a customer sends internationally. The recipient can either accept the money in their digital wallet and move it to their local bank account or take the money out as physical cash at retail locations where Remitly has a partnership. This digital focus combined with accessibility at physical locations gives Remitly a strong value proposition for immigrants and is why the service had 2.8 million customers at the end of 2021.
Outside of its core remittance service, Remitly is working on a few projects. These include Remitly for Developers, which allows other companies to integrate Remitly's cross-border payments network onto their applications, and Passbook, an everyday spending card for multinationals. While they're small initiatives right now, these projects show Remitly's ambitions to move beyond just remittances to eventually becoming a digital wallet for immigrants and people spending time abroad.
Strong Q4 results
Remitly reported its fourth-quarter and full-year fiscal 2021 earnings on March 2, putting up impressive growth numbers. Customers grew 50% year over year to 2.8 million, send volume increased 60% to $6 billion, and revenue increased 69% to $135.3 million. Gross margins, which are calculated by taking revenue minus transaction costs, hit 58% in the quarter, which shows how profitable a strong remittance business can be. With 280 million immigrants globally, Remitly should be able to keep up this strong growth if it can continue executing its digital and physical corridor strategy.
One concern investors might have with Remitly is that it is unprofitable, posting an operating loss of $40 million in 2021. Management expects the company to remain unprofitable in 2022. While that's something to watch out for, investors shouldn't shy away from Remitly because of short-term losses. The company has great unit economics and is going after a $1.5 trillion global annual remittance opportunity (don't forget the other fintech projects), so investors should expect management to invest in expansion and to keep up the high growth rate. In the long run, investors will thank them for it.
A discounted stock provides an opportunity for long-term investors
The stock chart for Remitly is ugly. Since going public in September, share prices are down 80%, even though the business continues to put up strong growth numbers. With a market cap of $1.66 billion and $459 million in full-year 2021 revenue, Remitly stock trades at a trailing price-to-sales ratio (P/S) of 3.6, or just above the market's average right now.
Given the huge market opportunity it is going after, the optionality of adding stuff on top of its payments network, and the potential for juicy profit margins at scale, Remitly stock could be worth much more than $1.66 billion a decade from now. That strongly suggests this is a top IPO stock to buy this month.
