By Remitly (RELY) stock has underperformed the market this year, falling by over 22% even as the Nasdaq 100 and S&P 500 indices have soared by 20%+ and moved to their all-time highs.
It remains 47% below its highest level in 2023 and by 72% from its all-time high, bringing its market cap to $2.9 billion.
Remitly company background
Remitly is an American fintech that enables people to send money locally and abroad easily and cheaply.
This is a big industry that is also highly competitive. Banks are key competitors since the SWIFT network has made it cheaper and faster for people to send money around the world. On average, a SWIFT transaction takes less than a day to complete.
The industry also has many competitors like Wise, formerly known as TransferWise, WorldRemit, PayPal, Zing – owned by HSBC -, Torfx, and Xe, among others.
An emerging competitor in the industry is stablecoins like Tether, USD Coin, and PayPal USD. These stablecoins let people send money globally in a fairly private manner.
Remitly’s key competitive advantage is that it is a mobile-first company, has strong unit economics, a global scale, and a quality technology platform.
Remitly’s business is facing numerous catalysts. The most important one is that the number of people moving from developing and emerging markets to places like the US and in Europe is increasing.
Data shows that the US population has jumped by over 10 million under Joe Biden. This trend will continue regardless of who is in the White House since Congress has struggled to pass a comprehensive immigration bill.
Analysts believe that even the most comprehensive bill will not solve the immigration crisis in the US because of the many loopholes.
Remitly benefits from this crisis because most of its business is where immigrants in the US send money back home. A report by the World Bank shows that remittances to low- and middle-income countries rose to $656 billion in 2023. The bank expects that these inflows will jump by 2.3% this year.
The other catalyst is the fact that the American economy has avoided a hard landing, with wage growth remaining strong. A stronger economy leads to an incentive for immigrants to send money.
Growth is continuing, and profitability is in sight
Remitly has had strong growth in the past few years. Data shows that the number of quarterly active customers rose from just 948k in the fourth quarter of 2019 to over 6.9 million in the last quarter, a trend that will continue.
Additionally, the company’s send volume has risen from over $7 billion in 2019 to over $39 billion in 2023. The company hopes that the figure will cross $50 billion this year.
Send volume is an important metric because Remitly makes its money by taking a small cut for each cash it handles.
The most recent financial results showed that its send volume increased to $13.2 billion in the second quarter, pushing its revenue up by 38% to over $306 million.
Most importantly, Remitly’s net loss has continued to narrow. It lost $12.1 million, a big improvement from $18.9 million a year earlier.
The closely watched adjusted EBITDA rose to $25.1 million from $20.4 million in the previous quarter.
The management expects that its annual revenue will jump to between $1.23 billion and $1.25 billion this year, a 32% increase from 2023. Its adjusted EBITDA will be between $85 million and $95 million.
According to Yahoo Finance, analysts expect that its loss per share will improve from 65 cents in 2023 to 31 cents this year. This loss will then narrow to $0.05 next year, bringing the company to profitability by 2026.
Remitly will be able to continue growing without the need for raising capital. It ended the last quarter with $185 million in cash and short-term investments and just $15 million in debt.
Assuming that Remitly’s net profit margin stabilises at the industry median of 22.5% in the future, it means that its $1 billion in annual revenue will translate to a $200 million annual profit. This means that its hypothetical P/E ratio is just 14.5, which is lower than the S&P 500 average of 21.
The next key catalyst for the Remitly stock will be its earnings, which are expected to happen on October 31st.
Remitly stock price analysis
RELY chart by TradingView
The daily chart shows that the RELY stock price has been in a strong bull run in the past few days. It has risen above the 50-day moving average and is nearing the 23.6% Fibonacci Retracement point at $15.40.
The stock is also sitting at the key point at $15, the neckline of the slanted double-bottom chart pattern. Also, the Relative Strength Index (RSI) and the MACD indicators have pointed upwards.
Therefore, the stock will likely continue rising, with the next point to watch being at $20, the 50% retracement point.
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