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Western Union: Walmart Crashes The Party

Apr. 11, 2018 10:22 AM ETThe Western Union Company (WU)WMT22 Comments


  • Likely buried in the news flow of recent market volatility was the announcement of Walmart-2-World, an international money transfer platform.
  • In 2014, Walmart-2-Walmart caused waves in domestic transfers. Western Union cut prices, but this was less than 10% of the company's business.
  • Walmart-2-World is much different; 30% of consolidated revenue is impacted (and a larger percentage of operating income).
  • MoneyGram International is clearly willing to cede margins in order to gain share in partnership with Walmart. 2018 and 2019 expectations for Western Union are too high.

The Western Union Company (NYSE:WU) has a great capital light business model with stellar margins and has long been considered a value stock. It owns a commanding share of the global financial market, particularly within people to people transfers. The business forms a foundation for capital infusion into developing nations, yet there are kinks appearing in the armor. While disruption has been posited to come from disruptions in financial technology, the elephant in the room continues to be Walmart (WMT). At first glance, an unlikely player, Walmart brought disruption to domestic money transfers in the United States through its partnership with MoneyGram International (MGI) and it has decided to move onto bigger fish: global transfers outbound out of the United States. These transfers make up a not so small part of Western Union's business: 37% of Consumer-to-Consumer Segment revenue in 2017 was outbound from the United States and Canada to foreign countries, primarily developing nations.

The news of this announcement was seemingly missed by the market - perhaps investor focus was on the extreme volatility that was taking place market-wide last week. I don't think investors are giving enough credit to what will be an upcoming price war. If history is any guide, this could get ugly for Western Union very quickly.

Western Union, MoneyGram, and Walmart

While Western Union has some exposure to business solutions and bill payments, the vast majority of operating income (91% in 2017) is generated from the Consumer-to-Consumer operating segment, or individual money transfers from people like you and me to another. A significant portion of these transfers were cross-border transactions, facilitating the movement of money between countries. This, up to now, has been a business dominated by MoneyGram International and Western Union, with the two controlling a substantial portion of market share. Cash flow and margins, at least historically, have been built off of these foreign transfers. Domestic transactions (e.g., New

This article was written by

Michael Boyd profile picture
Compelling income and growth plays in the energy sector.

Author of Energy Investing Authority

Top 1% Analyst According to TipRanks

I have a decade of experience in both the investment advisory and investment banking spaces, with stints in portfolio management, residential mortgage-backed securities, derivatives, and internal audit at various firms. Today, I am a full-time investor and "independent analyst for hire" here on Seeking Alpha.

Analyst’s Disclosure: I am/we are short WU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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