The stock market keeps soaring, but Remitly Global (RELY 1.26%) has failed to join the party. Shares of the mobile remittance platform have tumbled 33% from highs set earlier this year due to perceived risks over reduced immigration to the U.S., potential taxes on remittances, and the rise of stablecoins for international money transfers.
There is a lot of negativity over Remitly Global stock right now. I believe these doubts are overblown. Here's why buying Remitly stock could set your portfolio up for life.
Stealing share in remittances
Compared to traditional remittances, Remitly Global is vastly superior for almost any customer looking to send money from one country to another. Remitly has an easy-to-use mobile application and lower fees than traditional players like Western Union. It is able to do so because it does not operate any physical money transfer centers, but it still partners with physical receiving locations in foreign countries when that is the preferred option for the person receiving money.
Due to this growing competitive advantage, Remitly's send volume is growing at the fastest pace in the industry. Last quarter, send volume was up 41% year over year to $16.2 billion. And yet, it still holds only a small sliver of the global international money transfer market. It is investing heavily in new products such as a WhatsApp integration and tools for microbusinesses, while also expanding into new corridors outside of its original key markets sending from the U.S. to India, the Philippines, and Mexico.
All this has led Remitly's revenue to grow at a phenomenal rate during the past few years. Since 2019, revenue has compounded at a 57% annual rate, growing from $126 million to $1.36 billion.
Image source: Getty Images.
Stablecoin competition and taxes
It can be confusing to see Remitly growing so rapidly while simultaneously seeing its stock price fall. This is because of two huge narratives that are striking fear into investors.
First is all the hype around stablecoins. Stablecoins are cryptocurrencies tied to a fiat currency, typically the U.S. dollar. In theory, it should be cheaper to send money digitally through stablecoins, bypassing traditional systems. There has been plenty of regulation around stablecoins in the U.S. as industry bulls try to get product adoption. However, using stablecoins to transfer money runs into an issue, which is converting said stablecoin into a currency your receiver can actually use in real life. At this step, you will still pay the same fee as before, just with an extra step. I have no doubt, either, that Remitly can begin to accept stablecoins as a form of funds once it gets regulatory approval. This is not a huge risk for the business.
Second, Remitly is facing potential pressure due to immigrant deportations, which could present a small headwind to the business. There is also a proposed tax on remittances. A changing immigration landscape may hurt Remitly's growth ever so slightly, but this tax is nothing to be worried about. It is only 1% and a tax on cash payments only. As it stands, the tax should help Remitly gain a competitive edge over traditional money transfer methods.
RELY Revenue (TTM) data by YCharts
Will Remitly stock set you up for life?
After the sharp share price decline, I believe Remitly stock is cheap and a perfect set-up for investors looking to buy and hold over the next 10 years. It has only 2% to 3% of the remittance market, giving it a ton of room to take share in a sector that has grown with globalization of work.
Today, the company has a market cap of $3.8 billion. It generated $1.36 billion in revenue during the past 12 months and it expects to generate more than $1.5 billion in revenue this year. The business has strong unit economics due to its digital-first strategy, with 60% gross profit margins that have ticked higher year after year. These wide margins should convert to 20% or higher bottom-line profit margins at scale, although today the company isn't generating much in profit because of its heavy spending on product development and marketing.
Remitly's $1.5 billion in revenue at a 20% profit margin equals $300 million in earnings, or a theoretical price-to-earnings ratio (P/E) of just 12. In five or 10 years, Remitly's revenue will be much higher than $1.5 billion, too, which should drive the stock price higher. Remitly stock looks like a multibagger in the making; investors could likely buy and watch the returns roll in during the next decade.
