The last few months have been rough for fintech companies, and that's especially true for Remitly Global (RELY -0.59%), a payments company focused on remittances.
Remitly priced its initial public offering (IPO) at $43 in September, but the stock is now trading in the single digits, down nearly 80%. At the same time, peers like PayPal Holdings and Block have also fallen sharply, and are down 64% and 60%, respectively.
So Remitly's crash isn't because of any change in its underlying business. Market sentiment has shifted dramatically in the last few months. Fears of inflation, rising interest rates, and now the war in Ukraine have sent high-growth tech stocks plummeting, especially unprofitable ones like Remitly.
However, from an investment perspective, the stock looks much more intriguing after the sell-off. Remitly now trades at a price-to-sales ratio of just 3, and the company is growing rapidly, as its fourth-quarter results show. Revenue jumped 69% to $135.3 million. Send volume, which measures the total amount of remittances sent on the platform, was up 64% to $6 billion, and average revenue per active customer increased 13%, showing the company is also gaining traction with its current user base.
Image source: Remitly.
A different kind of payments company
Though it may be easiest to compare Remitly to fintech giants like PayPal and Block (formerly known as Square), as a remittance company, Remitly's closest competitors are Western Union and MoneyGram International. Those companies have a larger market share than Remitly, but the global market is highly fragmented. Remitly's technology gives it an edge because it was built as a digital company from the ground up, and you can see from its revenue growth that the company is rapidly gaining share in a relatively mature industry.
Building out a global remittance business comes with challenges that don't apply to companies like PayPal or Block, which handle mostly peer-to-peer payments or credit card payments. In order to process remittances, Remitly has to do things like balance foreign exchange rates and open brick-and-mortar locations in recipient countries so its unbanked users can receive transfers.
In addition to processing payments from immigrants around the world, it is also partnering with other platforms to embed its product with more users, through its Remitly for Developers program. It's a business-to-business offering that allows businesses to disburse payments through Remitly's network of billions of bank accounts, as management explained on the earnings call.
Among its Remitly for Developers partners is Coinbase Global. Allowing Coinbase users to tap into Remitly's network creates a high-margin business for Remitly because it's leveraging technology and infrastructure that's already in place, and the company benefits from additional traffic on its payment network, which helps it better leverage its costs.
It's also investing in a product called Passbook, which is essentially an accessible bank account for immigrants allowing them to receive direct deposits. It's a way of solving other financial-services pain points for immigrants, which should further increase the company's market penetration and lead to new revenue streams.
What's next for Remitly
Looking ahead to 2022, the company expects revenue growth of 32% to 34%, reaching a range of $605 million to $615 million, slowing from a 78% increase in 2021. But that guidance may be conservative as the forecast implies only a slight increase from its fourth-quarter run rate.
It also expects its adjusted EBITDA loss to widen from $10.5 million to a range of $30 million to $40 million as it plans to step up investments in new products, including Passbook. The company is also confident in ramping up spending because it earns a return of $6 in lifetime customer value for every $1 it spends on customer acquisition. Its market penetration is also low at just 1% of the total addressable market in remittances, which it values in the trillions. So there's a huge market opportunity awaiting the company.
Shares initially gained on the report, but have since fallen as the market continues to gyrate lower on geopolitical pressures. As the only digital-first remittance company and one that's still unprofitable, it might look risky, but the company has a significant market opportunity as well as a number of competitive advantages that should help drive long-term growth. At the current stock price, Remitly could be a multibagger years from now if the company's growth strategy is realized.
