Cross border payment processor Flywire (NASDAQ: FLYW) reported results ahead of analysts' expectations in Q2 FY2023, with revenue up 50.1% year on year to $84.9 million. On top of that, next quarter's revenue guidance ($124.5 million at the midpoint) was surprisingly good and 4.94% above what analysts were expecting. Flywire made a GAAP loss of $16.8 million, improving from its loss of $23.8 million in the same quarter last year.
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Flywire (FLYW) Q2 FY2023 Highlights:
- Revenue: $84.9 million vs analyst estimates of $73.5 million (15.5% beat)
- EPS: -$0.15 vs analyst estimates of -$0.15 (2.5% beat)
- Revenue Guidance for Q3 2023 is $124.5 million at the midpoint, above analyst estimates of $118.6 million
- The company lifted revenue guidance for the full year from $389 million to $400 million at the midpoint, a 2.83% increase
- Free Cash Flow was -$7.81 million compared to -$21.3 million in the previous quarter
- Gross Margin (GAAP): 60.2%, down from 61.4% in the same quarter last year
"I am extremely proud to report our excellent second quarter results, which capped off a strong first half of the year for us,” said Mike Massaro, CEO of Flywire.
Originally created to process international tuition payments for universities, Flywire (NASDAQ:FLYW) is a cross border payments processor and software platform focusing on complex, high-value transactions like education, healthcare and B2B payments.
Consumers want the ability to make payments whenever and wherever they prefer – and to do so without having to worry about fraud or other security threats. However, building payments infrastructure from scratch is extremely resource-intensive for engineering teams. That drives demand for payments platforms that are easy to integrate into consumer applications and websites.
As you can see below, Flywire's revenue growth has been impressive over the last two years, growing from $37 million in Q2 FY2021 to $84.9 million this quarter.
This was another standout quarter for Flywire with revenue up a splendid 50.1% year on year. Its revenue did decrease, however, by $9.49 million in Q2 compared to a $21.3 million increase in Q1 2023. Regardless, we aren't too concerned because Flywire's sales seem to follow a seasonal pattern and management is guiding for revenue to rebound in the coming quarter.
Next quarter's guidance suggests that Flywire is expecting revenue to grow 30.7% year on year to $124.5 million, slowing down from the 40.5% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 19.1% over the next 12 months.
The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Flywire's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 60.2% in Q2.
That means that for every $1 in revenue the company had $0.60 left to spend on developing new products, sales and marketing, and general administrative overhead. Flywire's gross margin is poor for a SaaS business and it's dropped significantly since the previous quarter. This is probably the exact opposite of what shareholders would like to see.
Key Takeaways from Flywire's Q2 Results
With a market capitalization of $3.7 billion, Flywire is among smaller companies, but its $328.1 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.
We were impressed by how strongly Flywire blew past analysts' revenue expectations this quarter. We were also glad that its full-year revenue guidance came in higher than Wall Street's expectations. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock is up 5.53% after reporting and currently trades at $33.95 per share.
Flywire may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.
The author has no position in any of the stocks mentioned in this report.