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Xoom’s Zooming Growth in Money Transfer

Posted on Friday, May 3rd 2013

Market reports suggest that last year more than $100 billion of funds are transferred online from the U.S. alone. The market is expected to be worth four to five times that globally. According to the World Bank, the global market for remittances grew annually at 12% to $513 billion over 2004 to 2011. The Bank estimates the market to grow annually 7% through the year 2015.

Xoom’s Financials
Online funds transfer agency Xoom (Nasdaq:XOOM) reported their first ever public quarter, with a financial performance that exceeded market expectations. Revenues of $24.3 million were ahead of the Street’s target of $22.82 million and grew 43% over the year. EPS of $0.02 was also ahead of the breakeven quarter projected by analysts.

Operating metrics were equally impressive. Gross sending volume for the quarter grew 63% to $1.06 billion, with transactions rising 51% to 2.039 million. They ended the quarter with the number of active customers growing 46% to 841,819. During the quarter, they reported new customer growth of 19% to 109,631.

For the current quarter, Xoom projected revenues of $25 million-$26 million with a net loss of $0.10-$0.07 per share. They expect to end the year with revenues of $104 million-$106 million and a net loss of $0.24-$0.19 per share. The market was projecting a loss of $0.07 per share for the quarter and a loss of $0.24 for the year.

HTML 5 for a Better Mobile Experience
Mobile device use has seeped into almost all forms of online transactions. Xoom themselves saw the use of mobile devices for transactions grow to 28% of total transactions compared with 15% a year ago. In response to the increasing use of mobile devices for fund transfers, last quarter Xoom launched a new and improved mobile website based on HTML 5 features. Xoom claims that the website offers an improved platform for transfer transactions and lets consumers send their funds anytime from anywhere.

Xoom’s Customer Focus
To deliver a better customer experience, Xoom also launched two new initiatives during the quarter. StatusTrak, launched in January, gives customers access to multiple ways to track transfers. They can use either mobile text messages or email updates and can even call the 24/7 support to track the status of their transfers.

More recently, they launched Pay Only When Received, POWR, a service that debits the customer’s funds only after the money has been received at the destination. The service was initially launched in Philippines and was available to customers who transacted using their bank accounts. The service ensures higher customer satisfaction and will be extended to other regions.

Most of the remittance market is dominated by banks and credit card companies like VISA and MasterCard. Xoom is estimated to account for 1% of the market of U.S. originated transactions. Globally, their market share is estimated at 3%. Surely, the company has a major opportunity for growth. Xoom focuses entirely on the online sector, and unlike their competitors, Western Union and Moneygram, they do not have any retail and physical presence. As a result, Xoom is able to charge some of the lowest transaction fees in the segment. But they still need to turn a profit. Xoom’s management says that they have a long-term operating plan in place which will help them turn an operating profit of 20%.

Xoom’s stock is trading at $19.22, with a market capitalization of $633 million. They raised $101.2 million through their IPO, which sold 6.3 million shares at $16 each in February 2013. The stock soon soared to a high of $26.00 after listing, but has fallen since.

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