Upload
tmfjmo
View
459
Download
3
Embed Size (px)
DESCRIPTION
A look at Xoom as a potential investment idea.
Citation preview
1
NASDAQ: XOOMJason A. Moser
2
Money transfer services represent a tremendous global market opportunity.
Advancements in technology are changing the way money is moved around the globe.
Xoom’s digital platform, capital light business model, risk management system and massive market opportunity make it a compelling investment today.
The idea
3
What does Xoom do?
Xoom provides consumer-to-consumer
online money transfer services.
4
Market opportunity
$179B Collective amount that the top four remittance receiving countries (China, India, the Philippines and
Mexico) received in 2013 according to the World Bank.
$123B Amount of outbound remittance sent from the US in 2012 according to the World Bank’s Bilateral
Remittance Matrix.
$81B Amount of 2012 US outbound remittance that went to countries Xoom serves.
5
Market opportunity
Source: Xoom Investor Relations
6
Market opportunity
$125BAccording to World Bank projections, this is what the total
amount of outbound remittance from the US to the countries Xoom serves will be in 2018 based on the countries Xoom serves today. It does not account for the additional countries that Xoom
will add over the coming 5 years.
7
Immigration populationXoom’s typical customers left their home countries and moved to the US to seek better
employment opportunities and to support their family and friends back home.
Source: Xoom Investor Relations
8
How does Xoom make money?
Transaction fees charged to customers. Service fees generally vary by country,
type of funding source, disbursement currency
and send amount.
Xoom also generates revenue from foreign exchange spreads on
transactions where the payout currency is other
than US dollars.
9
Xoom customers do not pay originating agent commissions.
The majority of transfers are funded directly from bank accounts, which lowers the cost of sales.
Xoom is not weighed down by the costs of maintaining a physical infrastructure.
Capital light
10
Where does Xoom go?
Source: Xoom Investor Relations
11
What metrics matter?
12
Mobile mattersPercentage of Xoom transactions made from mobile devices
Source: Xoom Investor Relations
13
Loyalty matters
Source: Xoom Investor Relations
14
How it works
Source: Xoom Investor Relations
15
Fundamentals of funding
90% The percentage of Xoom’s GSV (gross sending volume) that is funded by bank accounts through ACH (Automatic Clearing House).
95%The percentage of ACH funded transactions that Xoom processes instantly
in order to expedite disbursement by its partners. Xoom calls this “instant ACH.”
4The number of days Xoom is exposed to the risk of reversals for ACH transactions. Reasons for reversals include bounced checks, invalid
accounts, fraud, etc.
16
Risk management
Source: Xoom Investor Relations
17
Tomorrow versus yesterday
Xoom (XOOM) Western Union (WU)
18
Margins mean money
65% - 70%This is the target range for the company’s sustainable gross margin. “ACH risk management requires that a merchant take on four days of
funding risk. We have perfected our risk management systems to allow us to make a decision to give the consumer an instant experience, even though we're taking on four days of funding risk almost all the time.
So we get these great margin benefits, the consumer gets a great price, and yet the consumer also has a very fast experience. There is no one that
we know of who does this.” Xoom CEO John Kunze
19
Xoom is projected to grow sales at a 15% CAGR over the next five years. In 2018 it should bring in about $250 million sales.
Going beyond that, five more years at a 10% CAGR have revenue in year ten (2023) at $395 million.
Discounted cash flow gives a few different looks at today’s price with gross margin at 68% and cash on the balance sheet: 10% discount rate: $30 12% discount rate: $24 15% discount rate: $18.50
The market’s take on the stock price today is the right one. BUT what could Xoom look like in five years? Is there growth
to be had?
Understanding present worth
20
An investment in Xoom is really about what the stock’s going to look like in 5 – 10 years.
With a $700 million market cap, it’s still dwarfed by Western Union’s $8.5 billion.
What kind of multiple would the market assign Xoom in year five (2018) when it’s making $250 million in revenue versus $122 million in 2013? It gets 6X sales today: 6X sales in year five is a $1.5 billion company and $40 stock price with
zero share dilution. Reasonable? Market cap yes, zero dilution no. Don’t try to assign a share price to a growth story. Look at the
company as a whole and assess its competitive position. Do you want to own this business in five years? Ten?
Understanding future worth
21
ManagementJohn Kunze
CEO/President since 7/2006 Spent 13 years at Adobe Systems
Ryno BlignautCFO since 3/2008
Chief Risk Officer since 8/2012
No photograph
22
ManagementKevin Hartz
Xoom Co-Founder 2001Board Director
CEO and Co-Founder of EventbriteEarly investor in PayPal
Julian KingSVP of Marketing and Corporate
DevelopmentWith Xoom since 8/2005
23
Disruption: Something better can always come along. Risk Management: Instant ACH is a key differentiator; any
flaws in risk management could kill margins. Security: Breaches in security could send users elsewhere. Limits: Sending limits, while part of risk management, may
stifle growing market share. Exchange Rates: Weak dollar can ding transactions and GSV. Geography & Regulation: 60% of 2013 revenue was tied to
transfers to India and the Philippines. The Big Macro: Weak economic conditions hamper volume. Float: With a float of 57% shares can be volatile.
Risks
24
Western Union: With its vast physical presence it’s not going away, but it is being disrupted thanks to the Internet.
Big banks: See above. PayPal: Doesn’t focus on Xoom’s core market and in fact, as in
many cases, PayPal works with Xoom, not against it. WalMart: WalMart's announced money transfer service isn't
disruptive. It's a bigger threat to Western Union than to Xoom.
Moneygram: Also has relationship with WalMart, also beholden to drag of physical infrastructure.
Facebook: Will Facebook payments wipe out the money transfer industry in the process? Doubtful, but possible.
Competition
25
Money is moving around the world at a phenomenal pace and this is poised to continue.
This is NOT a winner-take-all situation. There will of course be more than one winner in this space.
Xoom’s digital platform, capital light business model and risk management system together are key differentiators.
Walmart’s money transfer service isn't disruptive. It's complementary to its physical infrastructure and client base.
Xoom focuses on the US outbound remittance, a small part of an important and growing market.
BlueKite acquisition is in line with stated growth strategy of pursuing adjacent services. Stay tuned.
Bottom line for investors
26
Remember, investing is all about the future. There are
never any guarantees and you're taking a measure of a leap of faith
every single time.