In the summer of last year, I believed that it was time to get upbeat on shares of Remitly Global, Inc. (NASDAQ:RELY). This came after the company had seen solid growth since its public offering in 2021, albeit that it was accompanied by increasing losses. While the risk-reward looked better amidst continued growth and a falling share price, operating leverage was badly needed.
The company has seen a strong growth acceleration over the past year and demonstrated on modest operating leverage, with shares having nearly tree-folded over the past year and a bit. The momentum run leaves shares more than fully valued here, meaning that I am taking profits here.
A Recap
Remitly aims to improve the lives of immigrants and their families by offering financial services to transfer money abroad. Been around for over a decade, the company focuses on so-called remittance markets, in which family members in developed countries typically sent part of their income to their family members who typically reside in developing countries.
Remittal of money is a complicated process, including currency conversion, as the process of sending money is hard, subject to errors, and expensive. At the time of the public offering, the global market was pegged at $1.5 trillion.
The idea is that its application allows customers to sent money with a few taps on the app. This is key, as many consumers do not have bank accounts, yet they typically do have access to mobile phones.
Around the time of the IPO, the company facilitated some $16 billion in annual payments, about 1% of the estimated global market of $1.5 trillion. The company went public at $43 per share, granting the company a $6.5 billion enterprise valuation. This was applied to a business which generated $126 million in sales in 2019, albeit accompanied by an operating loss of $50 million. Revenues doubled to $257 million in 2020, with operating losses narrowing to $29 million.
Sales rose another 92% in the first half of 2021 to $202 million, as operating losses narrowed to $10 million, granting the company a 16 times annualized sales multiple at the time of the offering. Revenues were generated on $9.2 billion in payments facilitated in the first half of 2021, suggesting that the company takes a ¨cut¨ of just over 2% of the money wired through the app.
Downhill
After the IPO in September 2021, shares fell to the $20 mark by the end of the year 2021, as shares fell to $10 in August 2022 (after even trading in the mid-single digits during the spring). While revenues for the remainder of 2021 grew at a decent clip, with the company ending the fourth quarter with a more than half a billion revenue run rate. Operating losses ticked up (in part due to stock-based compensation expenses following the IPO).
The 2022 outlook was mixed, with sales seen up 32-34% to a midpoint of $610 million, with adjusted EBITDA losses seen at a midpoint of $35 million. After adjusting back many items, it was clear that losses were not really coming down.
First quarter sales for 2022 rose by 49% to $136 million, as operating losses increased to $23 million. Second quarter sales rose by 42% to $157 million, as operating losses rose to $39 million, due to ballooning stock-based compensation expenses. With shares trading at $10 in August 2022, the company commanded a mere $1.3 billion operating asset valuation (after accounting for a sizeable net cash position). This valued the business at just around 2 times sales, as the troubles were the substantial losses (driven by stock-based compensation expenses).
The combination of 50% sales growth in combination with a mere 2 times sales multiple looks highly compelling, as the issue was that of significant losses. On the other hand, a strong balance sheet gave the company plenty of time to display on operating leverage, making an opportunistic position seem warranted.
On Fire
Still, a $10 stock at the start of this year, shares of Remitly have gradually risen to current levels of $27, marking a big recovery as shares have essentially tripled.
In February, reported a 43% increase in full year sales to $654 million on the back of a 40% increase in volumes send to $28.6 billion, indicating that the company’s cut actually increased a bit. The problem is that operating losses for the year tripled to $121 million, albeit that fourth quarter operating losses of nearly $23 million rose much more modestly (in what typically is a stronger fourth quarter).
The heavily adjusted EBITDA number came in at minus $14 million, as the company guided for 2023 sales to be up 33% to a midpoint of $870 million, with EBITDA losses seen between ten million and flat, marking just modest progress on the bottom line.
First quarter sales this year rose 50% (on the back of a 40% increase in send volumes) with revenues reported at nearly $204 million, as operating losses were reported at $28 million on actually an EBITDA profit of $5 million. On the back of the strong topline results, the company hiked the full year sales guidance to $885 million and saw EBITDA profits around $10 million.
In August, second quarter sales were reported up 49% to $234 million, with send volumes up 38%. Operating losses narrowed to $18 million on a $20 million EBITDA number. For the year revenues are now seen at $920 million, with EBITDA seen between $33 and $40 million, with both metrics having been hiked significantly.
The revised outlook suggests that momentum is set to continue as the issue is that dilution, losses depleting net cash balances and the rising share price means that operating asset valuations have risen to $4.6 billion. This means that a 2 times sales multiple this time last year has moved up to 5 times, actually on the back of accelerating topline sales growth and some progress on the bottom line as well.
What Now?
The reality is that I am very impressed with the Remitly Global, Inc. business and the stock since I was cautiously upbeat in August last year, as shares nearly tripling in just fifteen months is a very impressive result.
Recognizing the great sales growth and margin improvements demonstrated upon, I think that the stock moves up for the right reason, but simply might have risen a bit too much.
This makes me cautious to get involved (also as revenue growth outpaced spend growth), making me a profit taker with an above average and continued interest in the firm.
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