Online money transfer platform Remitly (NASDAQ:RELY) reported Q3 FY2023 results topping analysts' expectations, with revenue up 42.8% year on year to $241.6 million. Full year guidance was at $939 million, also exceeding expectations. Turning to EPS, Remitly made a GAAP loss of $0.20 per share, down from its loss of $0.20 per share in the same quarter last year.
Remitly (RELY) Q3 FY2023 Highlights:
- Revenue: $241.6 million vs analyst estimates of $239.2 million (1.02% beat)
- EPS: -$0.20 vs analyst expectations of -$0.16 (25.5% miss)
- The company lifted its revenue guidance for the full year from $920 million to $939 million at the midpoint, a 2.07% increase
- Free Cash Flow of $29.7 million is up from -$52.6 million in the previous quarter
- Gross Margin (GAAP): 55.7%, up from 48% in the same quarter last year
- Active Customers: 5.4 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.
Consumer Internet
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.Sales Growth
Remitly's revenue growth over the last three years has been exceptional, averaging 57.9% annually. This quarter, Remitly beat analysts' estimates and reported excellent 42.8% year-on-year revenue growth.
Ahead of the earnings results, analysts covering the company were projecting sales to grow 27.4% over the next 12 months.
Usage Growth
Over the last two years, Remitly's active buyers, a key performance metric for the company, grew 47.7% annually to 5.4 million. This is among the fastest growth rates of any consumer internet company, indicating that users are excited about its offerings.
In Q3, Remitly added 1.6 million active buyers, translating into 42.1% year-on-year growth.
Revenue Per Buyer
Remitly's ARPB has declined over the last two years, averaging 2.18%. Although it's unfortunate to see the company lose its pricing power, it was still able to achieve strong buyer growth. This quarter, ARPB grew 0.46% year on year to $44.75 per buyer.
Pricing Power
A company's gross profit margin has a major impact on its ability to extert 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 55.7% this quarter, up 7.7 percentage points year on year.
After paying for these expenses, Remitly had $0.56 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 past year, averaging 54.6%. This is a welcome development, as Remitly's margins are slightly below the peer group average and rising margins could suggest improved demand and pricing power.
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 42.3% 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.
Remitly reported EBITDA of $10.5 million this quarter, resulting in a 4.34% margin. The company has also shown above-average profitability for a consumer internet business over the last four quarters, with average EBITDA margins of 4.9%.
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's free cash flow came in at $29.7 million in Q3, turning positive year on year.
Remitly has burned through $103.4 million of cash over the last 12 months, resulting in a negative 13.1% free cash flow margin. This low FCF margin stems from Remitly's need to reinvest in its business to fuel revenue growth.
Key Takeaways from Remitly's Q3 Results
Although Remitly, which has a market capitalization of $4.88 billion, has been burning cash over the last 12 months, its more than $223.3 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.
We were very impressed by Remitly's robust user growth this quarter. We were also excited it produced strong revenue growth. Overall, we think this was a good quarter. The market might have been expecting more though, however, and the stock is down 16.6% after reporting, trading at $23 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 solid 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 been stagnating, the good news is its growth in active buyers has been strong. On top of that, its user acquisition is efficient.
Remitly's price/gross profit ratio based on the next 12 months is 8.3x. 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.
Wall Street analysts covering the company had a one-year price target of $31.4 per share right before these results, implying that they saw upside in buying Remitly even in the short term.
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