Chime (CHYM 3.08%), a fintech company that provides mobile-first banking services for its partner banks, went public at $27 on June 12. It started trading at $43, soared as high as $44.94 during the day, and closed at $37.11. Today, it trades at around $30.
Should investors buy Chime's stock as it trades far below its opening price from its first day? Let's take a closer look at its business model, growth rates, and valuations to decide.
Image source: Getty Images.
What does Chime do?
Chime isn't a bank. It only builds a user-friendly app that simplifies the banking process, and it relies on two FDIC-insured banks -- The Bancorp Bank and Stride Bank -- to hold and manage its customers' deposits. Through its app, it provides access to free checking and savings accounts with overdraft protection, early pay features, and other financial tools. It provides a Visa debit card with fee-free access to over 50,000 ATMs nationwide, as well as a secured Visa credit card to help its customers build up their credit scores.
Chime mainly targets lower-income users who don't have enough assets to open higher-value accounts, which are usually excluded from those fees at traditional banks. Its early pay features (which allow its customers to access a portion of their earned wages early without accruing any interest) are useful for people who live paycheck to paycheck.
However, Chime's customers don't have access to standard banking services like cashier checks, wire transfers, and money orders, and they can only make cash deposits at Green Dot retailers. They also can't take out mortgages or auto loans on the platform.
Chime generates most of its revenue from its Visa debit and credit cards. Whenever those cards are used to make a purchase, the merchant pays Visa an interchange fee (also known as a swipe fee) equivalent to about 1%-3.5% of the transaction. Chime keeps up to 1% of that fee.
A smaller percentage of Chime's revenue comes from The Bancorp Bank and Stride Bank, which pay out incentives based on the number of deposits it brings in. It could eventually strike similar referral deals with adjacent businesses like insurance and tax-filing companies.
How fast is Chime growing?
In 2023, Chime's revenue rose 27% to $1.28 billion, its gross margin expanded 4 percentage points to 83%, and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin improved from negative 40% to negative 15%. It narrowed its net loss from $406 million to $189 million.
Its number of active members grew 25% to 6.6 million during the year, yet it maintained a lower acquisition cost per customer by relying more heavily on referrals and digital campaigns instead of traditional ads. As a result, its margins expanded as its revenue rose at a faster rate than its marketing expenses. Its average revenue per active member (ARPAM) also improved from $210 to $212.
NASDAQ: CHYM
Key Data Points
In 2024, Chime's revenue grew 31% to $1.67 billion, its gross margin rose 5 percentage points to 88%, and its adjusted EBITDA margin improved to nearly breakeven levels. It narrowed its net loss again to $25 million.
Its number of active members grew 21% to 8 million for the year, while its ARPAM jumped 16% to $245 as its members used its cards and services more frequently. That growth indicates Chime's ecosystem is getting stickier as it rolls out more features and it's widening its moat against one-stop shop fintech apps like SoFi Technologies.
Does Chime look like a bargain at these levels?
In the first quarter of 2025, Chime's revenue rose 32% year over year to $519 million, its gross margin stayed flat at 88%, and its adjusted EBITDA came in at positive 5%. Its number of active members grew 23% to 8.6 million as its ARPAM rose 9% to $251.
However, its ARPAM for its active members who used at least six of its products -- who accounted for 12% of its active member base during the quarter -- was $442. That high ARPAM indicates it can squeeze more revenue from its most dedicated users as its ecosystem expands.
For the full year, analysts expect Chime's revenue to rise 26% to $2.1 billion with a positive adjusted EBITDA of $53 million. From 2025 to 2027, they expect its revenue and adjusted EBITDA to grow at a CAGR of 19% and 175%, respectively.
With an enterprise value of $10.1 billion, Chime doesn't look expensive at 4 times next year's sales and 43 times its adjusted EBITDA. It isn't a screaming bargain yet, but it could be a great long-term play on the growth of banking services for unbanked and underbanked individuals.
