Remitly

Remitly is a digital financial services company that specializes in international money transfers, more formally known as Remittances. Think of it as a modern, app-based alternative to traditional money-wiring services. Its primary mission is to make the process of sending money across borders faster, more affordable, and more transparent for its core user base: immigrants working abroad who send funds back to their families. Instead of relying on physical agent locations, Remitly leverages mobile technology to allow users to send money from their smartphones directly to a recipient's bank account, mobile wallet, or a designated cash pickup point. The company was founded on the idea that the financial system is stacked against those who move to a new country to provide for their loved ones, and it aims to disrupt the legacy players in the remittance industry by offering a more convenient and cost-effective digital-first solution.

Remitly's business model is straightforward and typical for a Fintech company in the payments space. It generates revenue primarily through two channels, both of which are tied to the volume of money its customers send.

• Transaction Fees: For each transfer, Remitly charges a fee. This fee can vary based on several factors, including the amount being sent, the speed of the transfer (e.g., an “Express” option costs more than a 3-5 day “Economy” option), and the destination country. This is the most direct and visible way the company makes money.
• Foreign Exchange Spreads: This is a more subtle, yet significant, source of revenue. When a customer sends money from, say, the United States (in USD) to the Philippines (in PHP), Remitly handles the currency conversion. It makes a small profit on the Foreign Exchange Spread, which is the difference between the wholesale exchange rate it gets on the financial markets and the retail exchange rate it offers to the customer. While the spread on any single transaction might be fractions of a cent, when multiplied by billions of dollars in send volume, it becomes a substantial revenue stream.

From a value investor's perspective, Remitly presents a classic case of a high-growth disruptor in a massive, well-established industry. The analysis involves weighing its impressive growth potential against its current valuation and profitability challenges.

• Huge, Non-Discretionary Market: The global remittance market is enormous, with hundreds of billions of dollars sent annually. For many recipients, these funds are not for luxuries but for essential needs like food, housing, and education, making the market highly resilient even during economic downturns.
• Digital Disruption: Remitly is successfully taking market share from legacy incumbents like Western Union and MoneyGram. Its digital-native platform offers a better user experience and lower costs, appealing to a younger, more tech-savvy generation of senders.
• Strong Brand Focus: By focusing intensely on the immigrant community, Remitly has built a trusted brand. Its marketing and customer service are tailored to the specific needs and languages of its users, creating a loyal customer base.
• Economies of Scale and Network Effects: As Remitly grows, its operational costs per transaction should decrease. Furthermore, as more people use and trust the service in a particular “corridor” (e.g., USA to Mexico), its brand recognition grows, creating modest Network Effects that attract even more users.

• Intense Competition: The money transfer space is fiercely competitive. Remitly faces pressure not only from the old guard but also from a swarm of other digital-first competitors like Wise and WorldRemit. This competition puts constant downward pressure on fees and spreads, potentially eroding profit margins over time.
• Profitability Concerns: Like many high-growth technology companies, Remitly has historically prioritized revenue growth over profitability. The company has a history of posting net losses as it spends heavily on marketing and technology to acquire customers. For a value investor, a clear and believable path to sustained profitability is a must, and Remitly's journey on this front is still a work in progress.
• Regulatory Scrutiny: Operating across dozens of countries means navigating a complex web of financial regulations, anti-money laundering (AML) laws, and licensing requirements. A change in regulation in a key market could significantly impact its operations or costs.

When analyzing Remitly, investors should move beyond standard metrics and focus on a few key performance indicators (KPIs) specific to its business:

1. Active Customers: Is the user base growing, shrinking, or stagnating? This is the primary indicator of the platform's health and adoption.
2. Send Volume: The total dollar amount of money processed through the platform. This, combined with active customers, shows how engaged its users are.
3. Take Rate: Calculated as (Total Revenue / Total Send Volume), this metric shows how effectively Remitly is monetizing the money it moves. A declining take rate could signal intense price competition.
4. Adjusted EBITDA: While the company may not be profitable on a net income basis, tracking its earnings before interest, taxes, depreciation, and amortization can show if its core operations are heading towards profitability.

Remitly is a compelling growth story that is fundamentally changing how people send money around the world. It operates in a massive and essential market and has proven its ability to win customers from less efficient, older competitors. However, for the disciplined value investor, the company often trades at a high valuation that prices in years of future growth. The lack of consistent profitability and the intense competitive landscape demand caution. An investment in Remitly is a bet on its long-term market leadership, but it requires a very attractive entry price to provide a sufficient Margin of Safety.