Online money transfer platform Remitly (NASDAQ:RELY) beat analyst expectations in Q1 FY2023 quarter, with revenue up 49.9% year on year to $203.9 million. Guidance for the full year was also close to analyst expectations with revenues guided to $885 million at the midpoint. Remitly made a GAAP loss of $28.3 million, down on its loss of $23.3 million, in the same quarter last year.
Remitly (RELY) Q1 FY2023 Highlights:
- Revenue: $203.9 million vs analyst estimates of $196.8 million (3.6% beat)
- EPS: -$0.16 vs analyst estimates of -$0.18 (11.1% beat)
- The company lifted revenue guidance for the full year, from $870 million to $885 million at the midpoint, a 1.72% increase
- Free cash flow was negative $1.73 million, compared to negative free cash flow of $78.8 million in previous quarter
- Gross Margin (GAAP): 53.9%, up from 48.4% same quarter last year
- Active Customers: 4.6 million, up 1.6 million year on year
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.
The ways people shop, transport, communicate, learn and play are undergoing a tremendous, technology-enabled change. Consumer internet companies are playing a key role in lives being transformed, simplified and made more accessible.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 incredible, averaging 60.6% annually. This quarter, Remitly beat analyst estimates and reported a very impressive 49.9% year on year revenue growth.
Ahead of the earnings results the analysts covering the company were estimating sales to grow 29.5% over the next twelve months.
Over the last two years the number of Remitly's active buyers, a key usage metric for the company, grew 49.8% annually to 4.6 million. This is among the fastest growth of any consumer internet company, indicating that users are excited about the offering.
In Q1 the company added 1.6 million active buyers, translating to a 53.3% growth year on year.
Revenue Per Buyer
Remitly’s ARPB has declined over the last two years, averaging 4.19% annually. While it is not great to see the company losing pricing power, at least the strong buyer growth somewhat compensates for it. This quarter, ARPB shrank 2.25% year on year, settling in at $44.32 for each of the active buyers.
User Acquisition Efficiency
Unlike enterprise software that is typically sold by sales teams, consumer internet businesses like Remitly grow by a combination of product virality, paid advertisement or incentives.
It is relatively expensive for Remitly to acquire new users, with the company spending 48% of its gross profit on marketing over the last year. This level of sales and marketing spend efficiency indicates Remitly has to compete for users and points to Remitly likely having to continue to invest to maintain growth.
Earnings & Free Cash Flow
Investors typically look at a company’s operating income to get a sense of how profitable a core business is. Adjusted EBITDA is the most common profitability metric for consumer internet companies, similar to operating profit, but removes various one time or non-cash expenses to give a more normalized measure of profitability.
Remitly's EBITDA was $5.36 million this quarter, which translates to a 2.63% margin. Over the last twelve months Remitly has shown above-average profitability for a consumer internet business with average EBITDA margins of 0.24%.
If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Remitly burned through $1.73 million in Q1, with cash flow turning negative year on year.
Remitly has burned through $149.9 million in cash over the last twelve months, a -20.8% free cash flow margin. This low FCF margin is a result of Remitly's need to continue investing in the business in order to fuel growth.
Key Takeaways from Remitly's Q1 Results
Since it has still been burning cash over the last twelve months it is worth keeping an eye on Remitly’s balance sheet, but we note that with a market capitalization of $3.01 billion and more than $244.2 million in cash, the company has the capacity to continue to prioritise growth over profitability.
We were very impressed by Remitly’s strong user growth this quarter. And we were also excited to see the really strong revenue growth. Zooming out, we think this impressive quarter should have shareholders feeling very positive. The company is up 4.52% on the results and currently trades at $18.05 per share.
Is Now The Time?
When considering Remitly, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We think Remitly is a solid business. We would expect growth rates to moderate from here, but its revenue growth has been exceptional, over the last three years. And while its ARPU has been declining, the good news is its user growth has been strong.
Remitly's price/gross profit ratio based on the next twelve months is 6.4x. There are definitely things to like about Remitly and looking at the consumer internet landscape right now, it seems that the company trades at a pretty interesting price point.
The Wall St analysts covering the company had a one year price target of $20 per share right before these results, implying that they saw upside in buying Remitly even in the short term.
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