Remitly Global Inc.

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 3/5

Remitly Global, Inc. is a digital financial services provider, focusing primarily on enabling immigrants to send money across borders through a digital platform.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Remitly operates as a digital-first platform, facilitating international money transfers, primarily targeting the immigrant population and enabling them to send money to their friends and family around the world. The company differentiates itself by prioritizing speed, convenience, and security in its platform.

Revenue Distribution

Remitly’s revenue is largely derived from transaction fees charged to customers sending money and also foreign exchange fees. The company also receives interchange and other fees from financial partners as well as some revenue from fees charged for some add-on services. Notably, the company has been moving from a primarily-transaction based fees to a subscription style platform. The company reports its revenue primarily by the countries its customers send money from.

The global remittance market is substantial and remains relevant due to consistent migration patterns. The digital remittance sector is witnessing growth as consumers seek more efficient and cost-effective solutions than traditional methods. It is characterized by strong growth expectations, driven by the convenience and speed of digital platforms, and is increasingly becoming competitive with the entrance of new players.

Digital Transformation: Remittances are increasingly transitioning to digital platforms, offering greater convenience and speed compared to traditional methods. Growing Competition: With low barriers to entry, more players are increasingly competing for market share, leading to pressure on fees and margins. Geographic Expansion: Emerging markets are seen as lucrative opportunities for growth in both the sending and receiving markets. Customer Demographics: The customer base is mainly immigrants who want to send money home to support their families. These customers often seek reliable, affordable and convenient services.

Margins

Remitly, while demonstrating impressive revenue growth, has reported negative operating profit margins as it continues to spend aggressively on customer acquisition. The company is focused on improving its customer value proposition and operating efficiency, with the goal of turning profitable in the future.

Competitive Landscape

Remitly competes in a fairly fragmented landscape that includes other digital players, traditional money transfer companies (like Western Union), and banks. This competition intensifies pressures on margins, but also drives innovation in the industry.

What Makes Remitly Different?

Customer-Centric Approach: Remitly focuses on providing convenience to its primary target of immigrant population, with multiple features including a multi-language customer support. Technology-Driven Platform: It leverages technology to offer faster, cheaper, and more secure digital money transfer. Global Network: The company has expanded its reach to various global markets, both as sending and receiving destinations for its customers. Scalability: The business model is scalable, and the company can expand with a relatively small capital outlay. Speed: Payments are quick and efficient using different payment methods and pay-out methods.

Financials In-Depth

Revenue Growth

Remitly has shown considerable revenue growth, increasing from $490 million in 2021 to $695 million in 2022, which further grew to $835 million in 2023. This trend demonstrates its potential in a fast-growing market.

  • 2024 Guidance: The company has guided for a full-year 2024 revenue of $950 million to $975 million.
  • The company has had strong revenue growth from its core segments in the US, Canada, and the UK.

Profitability

Despite strong revenue growth, Remitly is yet to achieve overall profitability, mostly due to high operating expenses related to marketing. The company is aiming to achieve profitability over the next few years.

  • Gross margins have increased due to increase in subscription sales, but the operating margins are consistently negative, resulting in negative net profit.
  • The company reported a GAAP net loss of $146 million in 2023, improving from a loss of $211 million in 2022, but a concerning trend of consistently losing money.
  • Positive adjusted EBITDA is expected to start showing in 2024.
  • Management plans to reduce reliance on transaction revenues and increase subscription revenues in the coming years to turn profitable.

Balance Sheet

The company’s balance sheet is relatively weak as it has a lot of intangible assets on the assets side. The company has a sufficient cash balance to support the current operations.

  • Cash: The company had $395 million in cash and equivalents at the end of 2023
  • Long term debt: The company has $255 million in long-term debt at the end of 2023.
  • Equity: The company reported a total equity of $698 million at the end of 2023.
  • Intangible assets: The value of goodwill and other intangibles has been consistently growing due to acquisitions over the years, totaling $1.25 billion in 2023.

Recent Concerns/Problems

Competition: The market is crowded and highly competitive. Volatility in Emerging Markets: Changes in currency exchange rates, economic instability and other factors in developing countries can impact remittances, which are a big part of RELY’s revenues. Profitability: The company is not yet profitable, and while management expects to become profitable, it will be a difficult task to turn around the current trend of consistently burning cash. Regulatory Changes: The regulatory environment is highly complex and constantly changing in many countries, and is difficult to predict. Credit Facility Restrictions: The current credit facility limits the business’s flexibility, with specific requirements based on debt-to-EBITDA ratios which are not yet achievable.

Management’s View

Management has outlined the path to profitability in the coming years through increasing their subscription offerings, becoming more efficient, and expanding their market. They continue to emphasize the long-term potential of remittances and the opportunity for their company. Management believes its focus on cost control and optimizing the business will lead to a profitable future. The management has taken many steps to ensure cash burn is minimized and the company has good liquidity to manage its operations.

Moat Rating: 2 / 5

Remitly possesses a narrow moat, due to its established digital platform and growing brand recognition among the immigrant community and switching costs for existing users. But competition in this area is intense and a company needs a stronger competitive advantage to have a wide-moat.

Sources of the Moat

Customer Switching Costs: Once customers become accustomed to the Remitly’s platform and have the app installed in their phones, they are less likely to switch. The integration with their sending process as well as saved recipient information helps in this. The time and efforts associated with switching to new apps can keep consumers in the ecosystem. Brand Recognition: The company’s focus on the immigrant community has resulted in a more recognizable brand among the target consumers. But still the brand is not as powerful as the more traditional players in the industry. Economies of Scale: As it gains more and more users, the operating expenses of the company will become relatively less.

Risks to the Moat and Business Resilience

Intense Competition: Competitors like Wise, Western Union and others are innovating and might provide better value proposition to customers. This threat is highly relevant. Technological Disruption: The company is reliant on technology. A more advanced tech or an easier way of sending money could displace Remitly. Regulatory Risk: With more regulatory scrutiny on international remittances and capital controls in some countries, the company is vulnerable. High Advertising Costs: To capture new customers in the competitive landscape the company is forced to spend more and more on advertising. This has hampered its profitability. Economic Downturns: Changes in the economy can impact migration and remittances, potentially leading to a decrease in RELY’s revenues.

Reliance on 3rd-Parties: Reliance on card networks and banks is essential for their processes, and those providers often compete directly with the company or could change payment terms. Uncertainty in emerging markets: The company has a lot of operations in emerging countries where regulations, currency volatility, and political and economic situations can affect the performance of the company negatively.

The company has a good amount of liquidity and cash to manage its business. The main risk to its business resilience would be the ability to keep its customer base and scale its revenues. If it fails in that then it might go down very quickly, although the management has been taking steps to ensure the company has enough cash and liquidity to sustain business operations for long time.

Understandability Rating: 3 / 5

Remitly is an understandable business since its core offering—digital remittances—is easy to comprehend and its target customer base is clearly defined. There are also no complicated technological concepts to understand, only the efficiency and ease of usage. However, some intricacies do arise when looking at the different markets it operates in, regulatory structure, payment methods and different methods of valuing the company that make it somewhat complex. Also, the long-term strategy of the company is not clearly defined and needs more time to understand. Therefore, we are giving the company a 3 on the understandability scale.

Balance Sheet Health: 3 / 5

Remitly has a decent balance sheet with enough cash to manage its operations for the near term, as well as some long-term debt. However, it also has some risks.

  • The increasing intangibles on the assets side might indicate overvaluation, especially since the company is making losses.
  • The negative operating income and net income and its high spending habits on marketing is also a cause for concern.
  • Given the above reasons, it’s neither a weak nor extremely strong balance sheet.

Overall, Remitly is a growing company in the digital money transfer space with lots of potential, but still has some areas that need to be improved. The company has a narrow moat, and while it has good growth opportunities, profitability is yet to be achieved. Investors must take note of the various uncertainties and risks the company faces for better judgment of investing in RELY.