The consumer financial app MoneyLion (ML -3.04%) went public through a special purpose acquisition company (SPAC) in September and has been underwater ever since. The company is now down about 80% from when it started trading independently.
Since its fourth-quarter earnings report on March 10, the stock has dropped another 18% and now has a market cap of $435 million, a far cry from the $2.4 billion enterprise value it had when the SPAC deal was first announced. Is this beaten-down fintech stock a buy at these levels? Let's take a look.
The model
I would describe MoneyLion as sort of a hybrid between fintechs SoFi and Dave. The company offers many financial services including cash-management accounts; online investing and crypto capabilities; insurance; interest-free cash advances; and a number of lending capabilities, such as mortgages, student loans, personal loans, and credit cards.
MoneyLion recently made two acquisitions. It bought the content company Malka Media, which will help it better engage with its users by providing financial news, personal finance tips, and other useful tools for customers.
Image source: Getty Images.
Then MoneyLion bought the financial technology company Even Financial, which is a conduit between businesses and financial-services providers. This will help push MoneyLion out into Even's large web of news sites, credit-comparison tools, and "into cross-sell flows of hundreds of financial institutions," says MoneyLion Chief Executive Officer Dee Choubey.
On the other end, the company will now be able to offer more third-party financial products to its customers, whether that's different loan offers, insurance, or lifestyle products. A big thing to understand about MoneyLion is that it forms partnerships with a lot of third parties to provide its wide range of financial products.
The company has a diversified revenue stream. It makes the majority of its money from fee income from its interest-free, cash-advance product and Credit Builder Plus membership subscription, which essentially gives users access to all of the different offerings on the platform.
It also earns interchange fees when consumers make payments on their debit cards from their MoneyLion cash-management accounts. The company also earns revenue from its managed investing program and third-party marketplace, in which it partners with companies to advertise their products and services to MoneyLion members. And it gets interest income from its secured lending product.
The company is growing
MoneyLion is showing solid growth in a lot of ways. The company reported adjusted revenue in the fourth quarter of $54 million, its best quarter ever, up 29% from record adjusted revenue in the third quarter of 2021.
Also in the fourth quarter, MoneyLion added 600,000 customers, which it defines as those with at least one MoneyLion financial account. That's more than SoFi, which is also coming off a record fourth quarter of its own, and Choubey said per-customer acquisition costs are in the low-$20 range, which is also very good.
The average revenue per user (ARPU) is $70, which is OK, but that jumps to $135 when customers use more than one product, and $235 when using more than two products.
MoneyLion generated revenue of more than $171 million in 2021, and it reported a loss in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of more than $67 million and an adjusted loss of $75.8 million. In 2022, management expects to nearly double adjusted revenue to $330 million and to achieve break-even adjusted EBITDA.
When examining companies that went public through a SPAC, I always like to go back to their first investor presentation to see if they are hitting their initial projections (spoiler alert -- it rarely happens). But MoneyLion has in fact done a decent job.
In its first investor presentation in April 2021, the company projected to finish 2021 with 2.6 million customers and adjusted revenue of $144 million. Not only has MoneyLion far exceeded those projections, but it is also on pace to far exceed initial revenue estimates for 2022. The one caveat is that customer acquisition costs are now at least double what they were in the first quarter of 2021.
Is MoneyLion a Buy?
Overall, I'm not overly impressed with MoneyLion's products. I don't see anything unique here, and I really don't like the idea of charging subscription fees essentially to use products that customers can really get for free. The company is still far from profitability, too.
The other issue is that its provision for potential losses on loan receivables seemed to spike to $60.8 million in the fourth quarter from $36.6 million at the end of the third quarter. The market is very worried about consumer debt right now as the economy deals with rising inflation and higher interest rates. I did not see an average FICO score of MoneyLion customers in regulatory filings, but I am guessing it ranges across the spectrum.
By going public through a SPAC, MoneyLion also has options and warrants outstanding that, once exercised, would dilute shareholders, although the warrants can't be exercised until the stock hits $11.50. At a recent price of $1.90 it has a long way to go.
Ultimately, while I wouldn't bet the house on this fintech, I am tempted to nibble or take a small position in MoneyLion at these levels. The company has hit some of its initial SPAC projections, which is rare, and is showing very solid growth with its past and current guidance. The stock trades at less than 1.5 times forward revenue, setting up a nice risk-reward proposition.
