Online money transfer platform Remitly (NASDAQ:RELY) reported Q4 FY2023 results beating Wall Street analysts' expectations, with revenue up 38.6% year on year to $264.8 million. The company's full-year revenue guidance of $1.24 billion at the midpoint also came in 2.4% above analysts' estimates. It made a GAAP loss of $0.19 per share, down from its profit of $0.05 per share in the same quarter last year.
Remitly (RELY) Q4 FY2023 Highlights:
- Revenue: $264.8 million vs analyst estimates of $261.4 million (1.3% beat)
- EPS: -$0.19 vs analyst estimates of -$0.20 (2.6% beat)
- Management's revenue guidance for the upcoming financial year 2024 is $1.24 billion at the midpoint, beating analyst estimates by 2.4% and implying 31.1% growth (vs 45% in FY2023)
- Free Cash Flow was -$37.06 million, down from $31.64 million in the previous quarter
- Gross Margin (GAAP): 58.8%, up from 52.3% in the same quarter last year
- Active Customers: 5.9 million, up 1.7 million year on year
- Market Capitalization: $3.33 billion
With Amazon founder Jeff Bezos as an early investor, Remitly (NASDAQ:RELY) is an online platform that enables consumers to safely and quickly send money globally.
The company is based in Seattle and was founded in 2011 and went public about a decade later. The product aims to give people access to financial services, especially those who are underserved by traditional banking systems.
The problem that Remitly solves is the difficulty and sometimes high cost of sending money overseas. Traditionally, people have relied on money transfer services that charge high fees and take several days to process. Remitly's platform offers a faster, more affordable option. The company's key customers tend to be people who need to send money to family and friends in other countries.
Remitly generates revenue through transaction fees, which vary depending on the amount and destination of the transfer. For example, if someone in the United States wants to send $500 to a family member in Mexico, Remitly might charge a fee of $3.99 for an economy transfer or $9.99 for an express transfer, which would arrive within minutes. Countries such as Vietnam may have higher fees. The company also makes money by offering different exchange rates for different currencies. By optimizing the exchange rate, Remitly can earn a margin on each transaction.
Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.Competitors offering online legal or document services include Western Union (NYSE:WU), Moneygram (NASDAQ:MGI), and private company WorldRemit.
Remitly's revenue growth over the last three years has been exceptional, averaging 56.3% annually. This quarter, Remitly beat analysts' estimates and reported impressive 38.6% year-on-year revenue growth.
For the upcoming financial year, management expects revenue to reach $1.24 billion at the midpoint, representing 31.1% growth compared to the 45% increase in FY2023.
As an online marketplace, Remitly generates revenue growth by increasing both the number of buyers on its platform and the average order size in dollars.
Over the last two years, Remitly's active buyers, a key performance metric for the company, grew 46.5% annually to 5.9 million. This is among the fastest growth rates of any consumer internet company, indicating that users are excited about its offerings.
In Q4, Remitly added 1.7 million active buyers, translating into 40.5% year-on-year growth.
Revenue Per Buyer
Average revenue per buyer (ARPB) is a critical metric to track for consumer internet businesses like Remitly because it measures how much the company earns in transaction fees from each buyer. Furthermore, ARPB gives us unique insights as it's a function of a user's average order size and Remitly's take rate, or "cut", on each order.
Remitly's ARPB has declined over the last two years, averaging 2%. Although it's unfortunate to see the company lose its pricing power, it was still able to achieve strong buyer growth. This quarter, ARPB declined 1.3% year on year to $44.87 per buyer.
A company's gross profit margin has a major impact on its ability to exert pricing power, develop new products, and invest in marketing. These factors may ultimately determine the winner in a competitive market, making it a critical metric to track for the long-term investor.
Remitly's gross profit margin, which tells us how much money the company gets to keep after covering the base cost of its products and services, came in at 58.8% this quarter, up 6.5 percentage points year on year.
For online marketplaces like Remitly, these aforementioned costs typically include payment processing, hosting, and bandwidth fees in addition to the costs necessary to onboard buyers and sellers, such as identity verification. After paying for these expenses, Remitly had $0.59 for every $1 in revenue to invest in marketing, talent, and the development of new products and services.
Remitly's gross margins have been trending up over the last year, averaging 56.4%. These margins are around that of a typical consumer internet business, but Remitly's rising margins may indicate improving pricing power or scale advantages over costs.
User Acquisition Efficiency
Unlike enterprise software that's typically sold by dedicated sales teams, consumer internet businesses like Remitly grow from a combination of product virality, paid advertisement, and incentives.
Remitly is efficient at acquiring new users, spending 43.6% of its gross profit on sales and marketing expenses over the last year. This level of efficiency indicates relatively solid competitive positioning, giving Remitly the freedom to invest its resources into new growth initiatives.
Profitability & Free Cash Flow
Investors frequently analyze operating income to understand a business's core profitability. Similar to operating income, adjusted EBITDA is the most common profitability metric for consumer internet companies because it removes various one-time or non-cash expenses, offering a more normalized view of a company's profit potential.
This quarter, Remitly's EBITDA came in at $8.18 million, resulting in a 3.1% margin. The company has also shown above-average profitability for a consumer internet business over the last four quarters, with average EBITDA margins of 4.7%.
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Remitly burned through $37.06 million in Q4, increasing the cash burn by 53% year on year.
Remitly has burned through $58.45 million of cash over the last 12 months, resulting in a negative 6.2% free cash flow margin. This below-average FCF margin stems from Remitly's continuous need to reinvest in its business to penetrate the market.
Key Takeaways from Remitly's Q4 Results
We were very impressed by Remitly's robust user growth this quarter. We were also excited it produced strong revenue growth and forward looking guidance was also optimistic. Zooming out, we think this was an impressive quarter that should delight shareholders. The stock is up 11.6% after reporting and currently trades at $19.75 per share.
Is Now The Time?
When considering an investment in Remitly, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.
We think Remitly is a good business. We'd expect growth rates to moderate from here, but its revenue growth has been exceptional over the last three years. And while its ARPU has declined over the last two years, the good news is its growth in active buyers has been strong.
At the moment Remitly trades at 42.0x next 12 months EV-to-EBITDA. There's definitely a lot of things to like about Remitly and looking at the consumer internet landscape right now, it seems that it doesn't trade at an unreasonable price point.
Wall Street analysts covering the company had a one-year price target of $26.50 per share right before these results (compared to the current share price of $19.75), implying they saw upside in buying Remitly in the short term.
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