Huge News For Remitly Global Investors

Key Points

• Remitly is addressing the stablecoin opportunity head-on by adding services to its payments platform.

• Growth for the business was stellar last quarter.

• The stock looks cheap after a recent drawdown in the share price.

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In the last year, a narrative has formed around stablecoins disrupting cross-border payment fees. With the initial public offering (IPO) of Circle Internet Group and growing adoption of these fiat-backed cryptocurrencies, many investors have claimed that the traditional days of cross-border payments are behind us. This has sent shares of mobile remittance player Remitly Global (NASDAQ: RELY) down 30% from highs set earlier this year.

As a business that makes money on cross-border payment fees, Remitly could be threatened by stablecoins. But is it truly at risk? A new announcement from Remitly around stablecoins could be huge news regarding this narrative, and may turn stablecoins into a beneficiary for the business. Time to take a closer look at Remitly stock and see whether investors should buy the dip on this hated remittance player today.

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Disrupting the stablecoin narrative

Along with its Q2 earnings report (which will be covered below), Remitly announced new products that its 8.5 million active customers can use earlier this month. First is the Remitly Wallet, a digital wallet through Remitly where customers can hold currencies instead of just sending them from a bank account. Importantly, stablecoins are included in the currencies customers can hold.

Second, Remitly is using payment provider Stripe to help fund remittance transactions on the platform with stablecoins. This expansion in the number of ways people can send and receive money through Remitly will make the platform more valuable for users, which should drive more customer adoption. Lastly, Remitly is utilizing stablecoins on its balance sheet to help move money across border in real time when funding transactions for users, which should reduce its operating costs while again improving the customer value proposition of the platform.

More growth and reduced costs should mean more profits for Remitly going forward.

Image source: Getty Images.

Strong growth and market share gains

The last quarter was stellar for Remitly. Revenue grew 34% year-over-year to $412 million on the back of 40% send volume growth, with positive net income of $6.5 million. If people are utilizing stablecoins to bypass Remitly's remittance platform, it is not showing up in the numbers yet. The company is barely generating a profit, but that is because of all the new products its team is building, along with heavy marketing spend to acquire new users. Both are worthwhile buckets to pour money into as long as new customers keep joining Remitly and revenue is growing at this blistering rate.

As a disruptor in remittance payments, Remitly is gaining a ton of market share by stealing customer spending from the likes of Western Union. Legacy players are seeing declining send volumes as more customers adopt mobile native solutions like Remitly. The story is not over yet, though, with Remitly having an estimated market share of below 5% in total remittance payments around the world. Its revenue from outside North America has grown at close to 100% year-over-year and hit $350 million over the last 12 months.

RELY Gross Profit Margin data by YCharts

Why Remitly stock is a buy today

Despite this massive growth tailwind, investors are still discounting Remitly stock, likely due to the stablecoin disruption narrative and recent immigration changes in the United States. Immigration has been a headwind to the overall remittance market in recent quarters but has not impacted Remitly's growth whatsoever, which is a good sign for the market share gainer.

At today's price of $19 a share, the stock has a market cap of $3.9 billion. It is generating revenue of $1.46 billion and growing quickly, with room to double overall sales within a few years time to $3 billion. With gross profit margins of 58%, Remitly has plenty of room to expand its bottom-line net income margin. A figure of 20% is entirely reasonable over the long haul. $3 billion in revenue and a 20% net income margin is $600 million in net income, which would be a forward price-to-earnings ratio (P/E) of just 6.5 based on the current share price.

A future P/E below 10 in just a few years makes Remitly significantly undervalued at today's share price, which is why the stock is a buy after its recent drawdown.

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Brett Schafer has positions in Remitly Global. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.