The technology sector of the stock market went bananas in 2020 and 2021. With the prevalence of special purpose acquisition vehicles (SPACs) and traditional initial public offerings (IPOs), there was a record number of new listings (estimated to be over 1,000) across the U.S. stock market last calendar year. In 2022, this excitement has taken a complete 180-degree turn with very few stocks going public over the last few quarters amid geopolitical tensions and falling share prices.

Many IPOs from 2021 are down big in 2022, presenting a buying opportunity for long-term investors. Here's why Remitly (RELY 1.26%), a stock that went public in late 2021, is my top technology IPO to buy in December.

Remitly: Remittances for the digital age

Remitly is a financial services provider for immigrants and their families. More specifically, it offers international money transfers (called remittances) through its mobile application so immigrants can easily send money back to their home countries. For example, one of the most popular routes is from the United States to Mexico for migrant workers.

Unlike traditional remittance systems, Remitly is a digital-first offering that enables it to lower transfer fees vs. incumbents. This gives it a competitive advantage and is why hundreds of thousands of customers switch to the platform every year.

Strong Q3 results

In the third quarter of 2022, Remitly's active customers grew 49% year over year to 3.9 million. Payment volume through its platform grew at a slightly slower pace of 44% to $7.5 billion. And as Remitly continues to lower its fees for customers, revenue growth trailed payment volume, rising 40% year over year. Still, 40% growth is nothing to scoff at, especially in a time of macroeconomic uncertainty and with foreign-exchange rates seeing tons of volatility, which can impact a remittance business like Remitly.

With these strong results, the company raised its full-year revenue guidance to a range of $635 million to $640 million, or a growth rate of 38% to 40%. If the company is able to hit its full-year guidance, revenue will have grown at a 70%-plus compound annual growth rate (CAGR) from 2019 to 2022, making Remitly one of the fastest-growing companies in the world. To underpin what this rapid growth means, in 2019, Remitly generated $126.6 million in revenue, which is far less than the $169.3 million it reported just last quarter.

And there's no reason to think this rapid revenue growth won't continue. Customers are signing up at a strong clip, and with an estimated 150 million-plus migrant workers around the world, Remitly has a clear path to reach 10 million or more active customers this decade.

If you squint, the valuation is not that crazy

As of this writing, Remitly's stock is down 75% since its IPO and now sits at a market cap of $1.8 billion. The company is not profitable, posting a $111 million net loss over the last 12 months. However, with an asset-light model, Remitly has strong unit economics and gross margins of 49%. Once the business matures and management stops spending so much on sales and marketing (27.6% of revenue in the first nine months of 2022), it's easy to see how Remitly could have strong double-digit profit margins.

RELY Gross Profit (TTM) Chart.

Data by YCharts.

Counterintuitively, at this moment, investors should be cheering for these losses to continue. With $376 million in cash on the balance sheet, Remitly has plenty of room to keep its foot on the gas and lose money while growing revenue at a rapid pace. Looking a few years out, if Remitly can keep growing revenue 40% a year, its revenue will hit $1.75 billion three years from now. Assuming it can deliver a net income margin of 15%, that equates to bottom-line profits of $263 million, or a price-to-earnings ratio of 6.9 based on today's stock price.

So if you believe Remitly can continue growing revenue at these levels and increase its profitability over time, the stock is arguably trading at a discount today.