Based in San Francisco, CA, Xoom (XOOM) scheduled a $82 million IPO with a market capitalization of $438 million at a price range mid-point of $14, for Friday, February 15, 2013.
Five IPOs are scheduled for the week of February 11. The full IPO calendar is available here.
S-1 filed February 1, 2013
Manager, Joint Managers: Barclays; Needham
Co Managers: Raymond James; Baird
Xoom focuses on small Internet money transfers for immigrants in the US, sent to their overseas relatives. The average customer sent 8.5 transaction during 2012, and sent a total of $491.
Xoom lost $4.4 million on $80 million revenue for 2012, and had an EBITDA loss of $500,000.
Xoom is similar to subscription-based business in terms of recurring revenue.
Xoom's Internet service is undifferentiated relative to the two biggest competitors.
Walmart (WMT) is an Internet partner, a partnership that began in November 2011 and at this point should have generated more sales.
Gross margin is 40%, and ongoing customer acquisition cost is 22%. Other expenses have been managed down as a percent of revenue, as revenue increased. The customer base is growing and transactions per customer are increasing.
However, it seems unrealistic to expect significant profit margins from this business.
|annualized Sept 9 mos, proforma net|
|Online Money Transfer|
Xoom's 40% gross margins don't seem to support much of a profit margin and Xoom is currently running a slightly negative EBITDA. Xoom does generate recurring revenue from clients, but the service is undifferentiated from Western Union and MoneyGram.
The market is poised to grow, however. Since 2004, the global money transfer market has expanded at a 12% annual rate, to $513 billion in 2011, according to the World Bank, and it is expected to grow an additional 7% a year through 2015.
The stock market loves recurring revenue but to support a $500 million valuation (allowing for an increase in Xoom's price over time), Xoom should earn $15 million per year after taxes. That doesn't seem to be achievable near-term.
However, VC investors are not selling any stock in the IPO, which is a positive, and there is current institutional interest in the IPO, so Xoom could edge higher in the after market.
Xoom is a pioneer and leader in the online consumer-to-consumer international money transfer industry. Customers use Xoom to send money to family and friends in 30 countries.
Although not a traditional subscription business, Xoom operates similar to a subscription-based business model. This similarity is demonstrated by the predictable and recurring revenue from active customers
Xoom intends to focus on enhancing services and continue developing new features, including expanding and enhancing mobile capabilities, to improve customers' experience and further strengthen brand loyalty. Xoom launched its mobile strategy in November 2011. In the three months ended December 31, 2012, 25% of transactions were sent via mobile devices
Xoom intends on continuing to establish new marketing partnerships to improve awareness of its money transfer services with potential customers.
For example, in November 2011, Xoom announced an online retail partnership with Walmart.
Xoom believes its speed of deposit is superior to that of competitors and it would be difficult for a new competitor to replicate the breadth and quality of service Xoom's disbursement network provides.
Xoom's technology and compliance expertise enables a low-friction customer experience in a highly-regulated environment. Xoom believes new market entrants would likely find it difficult to replicate.
Xoom has two patent applications on file with the U.S. Patent and Trademark Office.
Xoom's largest competitors are Western Union (WU) and MoneyGram Payment Systems.
Xoom also competes against country-specific players, banks and informal person-to-person money transfer service providers that evade regulation. For example, for in money transfers sent from the United States to India, Xoom competes with ICICI Bank.
5% SHAREHOLDERS PRE-IPO
None of the VC's expect to sell stock on the IPO. The VC's are:
Sequoia Capital, 18%
New Enterprise Associate, 16%
Agilus Ventures, 10%
T. Rowe Price, 7%
DAG Ventures, 7%
USE OF PROCEEDS
Xoom expects to net $57.5 million from its IPO from the sale of 4.65 million shares. Shareholders expect to sell 1.1 million shares.
Proceeds are expected to be used for working capital and also for general corporate purposes.
Disclaimer: This IPO report is based on a reading and analysis of Xoom's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.