- MoneyLion enters 2022 with significant growth opportunities.
- These center around a recent acquisition and future expansion into Southeast Asia.
- The current valuation offers a strong margin of safety and a good risk to reward profile.
MoneyLion (NYSE:ML) finished 2021 with little fanfare and an embattled stock price that remained under sustained selling pressure for much of the year. Indeed, the company went public at a time when the market zeitgeist towards high-quality growth stocks had soured. This aggregated with the end of year tax-loss selling and the emergence of a new COVID-19 variant to create the conditions that crumbled its enterprise value to 2022 revenue multiple to 2.36x. This figure is set against year-over-year revenue expected to be not less than 84%. Hence, for the prudently growing fintech company, 2022 should be a year of redemption. One where MoneyLion proves to the market through the next 4 earnings quarters that it can prudently meet its now upwardly revised revenue guidance. The likelihood of this is increased with the recent acquisitions of Even Financial which is set to position MoneyLion more strongly in the United States.
The company has further indicated it will pursue expansion opportunities in Southeast Asia, namely in Malaysia, Thailand, Indonesia and the Philippines. There is also some speculation that MoneyLion is bidding for a digital banking licence in Malaysia. This would allow the commencement of banking operations in a country that currently hosts a large number of its back end software development staff. With strong growth set to power realized revenue to newer highs in the years ahead, I believe MoneyLion's current enterprise value of around $674 million fails to fully encapsulate this. Growth and the propensity of profits have historically been significant determinants of equity valuation. All other things being equal, companies with strong growth rates and propensity for profit tend to have valuations higher than 2.36x. A market valuation that is especially jarring with fiscal 2023 revenue set to be not lower than $525 million for a forward enterprise value to revenue multiple of 1.28x.
The Even Financial Acquisition
MoneyLion recently announced that it would be acquiring New York City-based Even Financial for $440 million. Even Financial is a B2B fintech company that allows financial institutions to add financial products to their business to better connect with consumers. The acquisition will comprise a $360 million upfront payment, of which $15 million will be in cash and $345 million in preferred shares that are convertible into 34.5 million MoneyLion common shares at $10 per share. A potential earn-out of up to $80 million, payable with 8 million in preferred shares valued at $10 per share, will also be made on achievement of certain targets. The acquisition is expected to be accretive to 2022 earnings with Even expected to realize revenue of at least $90 million.
Even Financial 2021 to 2022 Revenue (Source)
This would be an 80% growth over 2021 and would see MoneyLion diversify its revenue stream with the addition of a financial infrastructure company. Even Financial is also EBITDA-positive on a standalone basis and will power combined 2022 revenues to $375 million. The structure of the acquisition is a vote of confidence in MoneyLion. As it minimizes interim dilution while still fully recognizing revenue and EBITDA. To put it another way, the management of Even Financial and its shareholders, including Goldman Sachs, American Express Ventures, and SoFi, all agreed to sell their stake in exchange for an asset that can only be realized when MoneyLion's common shares more than double from where they currently are.
This comes as MoneyLion continues to develop its multi-product platform with complementary products that reduce customer acquisition costs and boost lifetime values. Customers have highly rated the utility of these products.
MoneyLion Trustpilot Ratings (Source)
The Next Stages For Growth
2022 is likely to be a pivotal year for MoneyLion as the company's stock price stands to correct the material divergence from its proper value that played out last year. This will be solely contingent on meeting the revised revenue guidance in a manner that does not put the company's balance sheet under too much pressure. Fundamentally, this year will be about showing, not telling, the market that the guidance is real and the current market cap nonsensical.
Fiscal 2024 will likely see the company's annual revenue run rate be at or just under $1 billion. This would place the 3-year enterprise value to sales multiple at 0.67x, a number that is far too low for the current rate of growth. I would be remiss if I did not state that this situation did not come about because of now ended temporary factors. In absence of these, the future earning results should have more clout in driving the movement of the company's share price. I hold cash-secured puts at the $5 strike price on the back of this. My near-term price target is $10 as I look forward to the growth story playing out over the next 12 months.
This article was written by
Analyst’s Disclosure: I/we have a beneficial long position in the shares of ML either through stock ownership, options, or other derivatives. 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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