On Friday, investors will have their first opportunity to invest in Xoom (XOOM), the digital money transfer company. Xoom offers money transfers through their website and a mobile service. The company is not yet profitable, but looks to be a long-term winner in a huge growing sector.
Based out of San Francisco, California, Xoom is "the smarter way to send money." The company offers services to 30 countries and is planning on growing this number. The three keys to the company are convenience, speed, and cost efficiency. The company offers these strengths:
· Compelling value proposition.
· Proprietary risk management system.
· Online origination affords valuable customer insight.
· Marketing expertise.
· Established global disbursement capabilities.
· Efficient regulatory compliance.
The company's growth strategy consists of:
· Attract and retain customers in the markets we currently serve.
· Establish new partnerships and improve current partnerships.
· Expand into new international markets.
· Leverage technology and develop services in adjacent markets.
Xoom competes with other money transfer services, including publicly traded Western Union (WU). With a large number of immigrants in the United States, Western Union has built a huge service of helping people send money back home to their relatives. The company did post rather weak fourth quarter earnings recently. Revenue was flat and net income was down significantly.
Western Union has a market capitalization of $8.1 billion. Xoom will begin trading with a value of under $800 million. Xoom appears more capable of gaining market share with its innovative products that are more with the trends than the traditional visit to a Western Union branch location. Also, by having no money exchange in Xoom's hands, the company has lower processing fees. This translates to some ridiculously high gross margins of 65-67%.
One negative for Xoom may be future competition. Paypal, Square, and other companies have excelled in the mobile money markets. Any of these companies could further put a dent in Xoom's market share. On the other hand, Xoom could now become a relatively smart takeover candidate with an in demand service.
Another area of concern could be Xoom's dependence on three of its thirty countries served. The company got 35% of the last nine month's revenue from the Philippines and 74% from Philippines, Mexico and India. Although, the Philippines does offer an average customer fee of $10.43 for the company.
A benefit Xoom has is several key business relationships. In November 2011, the company entered into a partnership with Wal-Mart's (WMT) online site. Customers can use Xoom.walmart.com to transfer money to other countries. In 2012, the company started working relationships with Skype and Univision Interactive Media. Univision's site is the most visited Spanish language site by Hispanics living in America.
Xoom recently expanded into mobile payments. This began in November of 2011 and has grown every quarter since. The last four quarters saw mobile payments of 11%, 15%, 18% and 22% as a percent of revenue. This is one huge area that could separate Xoom or have acquirers drooling to combine it with other operations.
Here is a look at several key financial figures:
|Revenue||$26.3 million||$32.8 million||$50.0 million|
|Net Loss||$5.5 million||$6.0 million||$4.4 million|
|Volume||$500.5 million||$859.0 million||$1.71 billion|
|Transactions||2.3 million||2.8 million||4.1 million|
|9 Months End Sept. 2011||9 Months End Sept. 2012|
|Revenue||$34.4 million||$57.9 million|
|Volume||$1.12 billion||$2.31 billion|
|Transactions||2.82 million||4.68 million|
The company has no official plans for proceeds of the public offering. The IPO is rather being done to create a public market for Xoom and raise working capital. Proceeds will be invested in short-term government debt. The majority of owners are not selling stock during the IPO. Prior to the offering, 45% of the company was owned by executives and directors. Sequoia Capital had an ownership stake of 22%. New Enterprise Associates and Agilus Ventures owned 19% and 12%, respectively.
Xoom priced its shares at $16 after a previous range of $13-$15. Demand seemed high on this company and shares should see a bump on Friday. I think shares are a buy and wouldn't be surprised to see a price over $20 in the company's first public day. Look to accumulate shares of this company for the long haul.