Remitly S-1

Disrupting Western Union seemed a tall mountain to climb... and then Remitly did it

1/ TLDR @remitly S-1: Disruptor of @westernunion makes remittances cheaper + faster + easier +digital.  Anti-portfolio for me - I met founders @mattoppenheimer @joshhug in 2012. I turned down as I found the degree of difficulty too high - @remitly needed to get money transfer licenses in every state + learn how to operate and create demand internationally. 

2/ Remitly has proven me wrong and brilliantly delivered on their vision. Customers no longer need to wait in line @westernunion and pay obnoxiously high fees. Remitly has high marketing spend but big TAM, strong retention and increased operating leverage point to a bright future. 

3/ Huge market - 280 million+ global immigrants send $1.5 trillion in global remittances. This generates $40 billion in annual transaction fees, of which Remitly has 1% share

4/ Before digital first competitors like @remitly @transferwise @xoom, customer had to wait in line @westernunion @moneygram. Now >85% of consumers engage with Remitly on mobile phones and >75% of transfers complete within an hour

5/ @remitly is very focused on immigrants and their families. This contrasts with broader product offerings, including B2B at competitors like @wise. 

6/ Focus is on a broad set of receive options: bank transfers, debit cards, credit cards, home delivery, or pickup. @remitly has ability to deliver to billions of bank accounts globally and 355K cash pickup locations. 

7/ Not only is @remitly more convenient and faster, it’s a superior business model to legacy companies. It has greatly reduced systemic cost with no local brick and mortar operations or even employees in local markets. 

8/ Unit economics appear strong. Payback in 10 months. LTV/CAC > 6x over 5 years. 

9/ Really nice revenue retention of >90% in the out years

10/ Phenomenal growth paired with a march toward profitability. H1 2021 revenue of $202.1 million (+92% YoY). There was a COVID bump here and active customer growth did slow to 57% in Q2, but still very heady. Operating loss down from -17.7% to -5.2% YoY. Marketing as % of revenue down from 30.5% to 25.9%

11/ @remitly also generating a higher take rate as volume ramps - with net revenue 2.12% of send volume in 2020 vs 1.78% in 2019. How will this trend over time - will network effects and dominant market share in certain corridors enable more pricing power or increased competition eat away at it?

12/ If trends continue, feels like a mature operating margin of high teens up to 20% is realistic by 2025 

13// @remitly, along with competitors like @paypal (Xoom) and @wise, are methodically stealing share from Western Union, whose revenue has fallen from $5.6B in 2018 to $4.8B in 2020. 

14/ That said, there is a big regulatory moat here for new entrants. These include getting money transmitter licensees in every US state; int’l regulatory approvals, big networks of banks and retail locations to accept remittances. It sets up well for years of continued growth for @remitly. 

15/ Bulk of @remitly revenue is US- based with biggest receive countries India, the Philippines, and Mexico. I wish they disclosed market share by receive country - would be helpful to understand if there are local network effects in generating demand and who is #1 competitor in each country

16/ Close competitor Wise did $421M for the year ended March 31. It has much lower growth than Remitly (+43% YoY in Q1) but is profitable with an 11.1% operating margin. Assume @remitly growth slows to 50% for the remainder of this year —> ~$430M in 2020 revenue. Assume 40% next year —> ~$600M. 

17/ How will investors value growth vs profitability? In this market, growth usually wins.  Wise is trading at a very heady market cap > $10B.  Remitly has a chance to reach something close to this valuation

18/ Note these stratospheric valuations are hard to stomach. @westernunion valued at ~$9 billion with $5B in revenue and ~$1B in operating profit. The market is betting on great execution for years to come to justify the valuations out there in this space

19/ Potential upside for @remitly: (a) Adding more markets - they have less than half the send countries as Wise; (b) Cross sell new financial products. Passbook, their neobank partnership, proves customers are willing to buy other @remitly financial services, starting with deposits

20/ I always lose sleep over my anti-portfolio, but a shout out here to @mattoppenheminer @joshhug and the whole @remitly team for building a business that is saving money and time for millions of immigrants and their families. I expect @remitly to leverage continued global remittances growth and share shift from incumbents to generate heady growth for years to come