Yet Another Value Podcast - Marathon Partners' Mario Cibelli on digital remittances company, Remitly $RELY

Episode Date: September 10, 2024

Mario Cibelli, Managing Partner at Marathon Partners Equity Management, LLC, joins the podcast for the fourth time to share his thesis on Remitly Global, Inc. (NASDAQ: RELY), a trusted provider of digital financial services that transcend borders. Chapters: [0:00] Introduction + Episode sponsor: Tegus [1:58] What is Remitly Global $RELY and why are they so interesting to Mario [3:22] What is Mario seeing in $RELY that the market is missing that makes this an alpha opportunity (in Mario's opinion) [8:08] $RELY service use case / question of fees to transfer money / bear case / crypto [17:25] How does their customer base trust them / why is it so complex to do digital disbursement the right way? [27:32] Digital fraud / business environment [35:34] Bear case cont'd. / valuation [44:48] Thoughts on Wise [51:13] Marketing expenses [58:56] Valuation cont'd [1:02:33] What keeps Mario up on at night on $RELY thesis [1:08:10] Final thoughts / additional key points investors should be aware of about $RELY, i.e., direct connections [1:16:34] Stable coins/crypto - why not a risk? Why Mario thinks it's an accelerant? Episode sponsor: Tegus If you’ve been reading my newsletters, you know how often I rely on Tegus for my research. It’s truly revolutionized how I get up to speed on new industries and companies. Tegus has the largest transcript library in the world, with over 75% of private market transcripts. Whether you’re curious about AI, biotech, or any niche market, Tegus has the insights you need. What sets Tegus apart is its all-in-one platform. It’s packed with expert call transcripts, management checks, panel calls, and in-depth financial data. No more jumping between different services or piecing together fragmented data. With Tegus, everything is right at your fingertips. The best part? The insights you get are from the very people shaping the industries you’re interested in. You’ll find perspectives from insiders and executives that you simply can’t get anywhere else. To see Tegus in action and understand why it’s my go-to resource, visit Tegus.com/value – that’s T-E-G-U-S dot com slash value. Trust me, once you try Tegus, you’ll never look back.

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I'm your host, Andrew Walker. If you like this podcast, I mean a lot if you could rate, subscribe, review wherever you're watching or listening to it. But with me today, I'm happy to have one. I think it's for the fourth time. It might even be the fifth time at this point. But one of the people's favorite guests, my friend and the founder of Marathon, Mario Sibeli. Mario, how's it going?

All right. It's our fourth time. Fourth time. I wasn't sure if we did a double dipping on Uber or not. But look, before we hop into it, I'm really excited for today's podcast. But before we get there, quick disclaimer to remind everyone that nothing on this podcast is investing advice. Please consult a financial advisor, do your own work, all that type of stuff. Mario, let's just jump into it.

The company today is Remitly. The ticker there is R-E-L-Y. I'm excited because I think I've had 12 different people give me inbounds on this one. After I said you were coming on, there was a little bit of Twitter debate on it. So, yeah, let's just go in. What is Remitly? Amare they so interesting? Yeah, you know, Remitly is a pretty simple business.

It's international money transfer, so kind of think money grants. Western Union, RIA, a couple of the brands. There's a digital wand called World Remit out there. A lot of people know Y's PLC, and those are not all addressing the same kind of market. But, you know, classically think of Western Union, the big yellow sign in front of a store, pay in with cash, pay out with cash, presence pretty much everywhere, every urban area, everywhere, all around the world. So these global networks have existed for a long time, you know, and they tend to be small, send them out.

You're talking about, you're generally talking about developed nations, sending money back home to developing nations. And so it's been around for an awfully long time, and remitly is the, essentially the digital version of Western Union. Perfect. I guess a lot of things to talk about here, but let me start with a high little view. You gave an overview of the business, but obviously we're investing in the stock market. The stock market is a very competitive place. I just want to start with, I know you do a lot of deep work. What do you think you're seeing in this company that the market is missing that makes this kind of an alpha opportunity?

you know i'm not exactly sure with the what the market's thinking i don't think it's probably thinking what i'm thinking about what the business could evolve to i think they got a really good shot at kind of being the booking dot com of the digital remittance space and i actually think it's a a really good shot. You know, the last one we we talked about was zometry, which, you know, is a little bit of a moon shot, but I think super interesting. And they just had a great quarter and, you know, the share price was initially beat up, but they had a really good quarter that surprised people. This, I put in a different category. I have a more of an enthusiastic, aggressive view that remittantly probably already has won the digital remittance space.

And it's extremely well positioned kind of longer term. So I think it's very, very likely that this is going to be a winner take all, winner take most market, you know, for a couple different reasons. And I don't think anyone is nearly well positioned as these guys. And there's a lot of dynamics, you know, in that, including a legacy base of competitors that for a variety of different reasons are not going to respond too well to this transformation of the business into kind of a more digital format. So I think ultimately you're going to be looking at a business that where scale

really matters. Whoever's got the most scale, whoever's the biggest, is likely going to do the best and there's lots of kind of benefits that flow out from that scale. But I think of company, you know i think of like amazon e-commerce i think of draft kings and fandul i think of booking dot com i think of a lot of other businesses you know that that i follow for a very long time i think some of the dynamics that um that are present here present in some of those companies and industries are is present here so essentially i think you have a um a digital service business it's in the process of transforming you know from a kind of a legacy model into it into a digital model but you don't have the supply side constraints that say an uber has or an Airbnb or booking has arguably

there's some supply um constraints around the the relationships you have with with banking sorry the banks on the other side these direct banking connections that i can get into later that are pretty important. So it's essentially, it's going to be a digital service business with lots of scale. The customers, the service is just, it's cheaper, you know, the take rate from Western Union to Remitly, you know, where, there's significantly different. You know, decade ago, Western Union's take rate, the revenue over the gross send value, gross send amount was above 5%, you know, 10 years later or so, you know, Western Union is now below 4%, 3 in change like 3837 something like that it's so that's a better deal for all the remittance

centers you know all over the world um the take rate on on on remittantly right now is about 2.3 percent profit like that so it's a it's a cheaper service it's a better service it doesn't require standing in line it doesn't require cash like the traditional model did so it's a cheaper better faster service with importantly low switching costs it's it's not like having a bank account or your brokerage account somewhere like that or some other kind of maybe financial relationship this is one that is susceptible to a nudge could get someone to try the better service and that's why you know advertising dollars are very important here having that scale in advertising and this is really what got me like a month or two ago really

thinking about booking.com just the you know the sheer amount of money they spend over time how much it's grown, and they've used that as a competitive weapon. I think those dynamics are present here with digital remittances. There's a lot to talk about. I guess let's just start. The use case here is really, and I think it's, you can correct me if I'm wrong, I think this might be one that's tough for, look, this is an investing podcast, right? People are listening to it because they like investing.

They probably have a little extra money to invest. They're probably not sending like digital remittances like this. I know a lot of people ask wise, and we can talk about that. I think that's a little bit of a different product, but, you know, correct me wrong, but the core use case here is kind of somebody sending an immigrant who lives here, sending money back home, and it's probably like $100 to $200, which is obviously different than, you know, I think you mentioned when we were talking offline an expat who might be transferring an entire paycheck, and, you know, they're probably making $3,000 or $5,000 or $5,000.

Am I thinking about that kind of correctly? Yeah, no, that's exactly right. You know, the three biggest corridors are U.S. to Mexico, U.S. to Philippines, and U.S. to India. The average send amount on the remitly system, you know, at time of IPO was around $400. It's probably not that much change. Take rate, you know, at two something percent, it's probably $9 of revenue per transaction. There's a fee, or sometimes there's not a fee, but there's certainly a spread. So FX spread, kind of wholesale buy, and then retailing that spread to the, to the,

client plus the fee kind of would equal the revenue so you know it's about nine dollars in revenue per transaction or something like that yeah it's a it's a hard-working immigrant that came from somewhere else that's here that's sending money back home to the family it's um you know it's to pay the bills right so this the inflation to some extent does have an impact on what someone can send back home but the money's being sent home to pay bills to pay rent to pay utilities to pay your mobile phone for medical expenses, all sorts of things like that. Back home to family, it's critically important. So it's going to ebb and flow a bit, but it's not like, you know, buying a pair of sneakers or clothing or apparel or anything like that. It's more, it's a,

it's most often a necessity on the received side. If I think back to 20, 30 years ago, right, when I heard this product, the first thing I thought of was Western Union and Moneygram, right, where you'd go into the store and you'd send it and they'd charge. I think I remember when it was like it was like a flat $25 fee or something. And, you know, on $250 or $500, that would really add up. I guess remitly's charging, you said just under 3%, which is under Western Union, significantly under the Western Union rate, but that's still a money transfer. And I think the first bear case I hear from a lot of people is, you know, they're just moving money, right?

they're taking $100 on one screen and transferring it to another screen. Sure, it's between banks and it's international, but why should fees be this high for this business and why isn't there a competition to fees and fees kind of go to zero over the time, right? Like, why can't banks do this between themselves? Why doesn't this go to zero? If this was three years ago, we might say, hey, why doesn't Bitcoin solve this would be an answer?

But I'll just kind of throw those fee questions over to you. Thank you, Mario, for those who are listening, Maro's rubbing his hands. He's excited. I didn't throw him a softball, but I did throw him something. I threw a fastball right over the middle to hit at this one. You gave me a lot to unpack. That's why I'm kind of going like this. I'll kind of have to take him one at a time.

You know, for starters, remitly is well below 3%. It's like 2.3%. And, you know, I think that's low relative to the industry. And look, historically, there's been some perception that remittance players, you know, rip off immigrants and rip off people by charging high fees. And in some quarters, it's less competitive. It's probably some unique quarters, you know, I don't know, like, you know, UK to some countries in Africa where it's not as competitive and the fees are higher.

But generally speaking, this is not a service that the government provides. There's all sorts of rules and regulations around this. You've got to know your customer. You've got to make sure that ill-gotten gains are not going across your rail. It costs something to support this, this is the legacy business, now these vast networks of, you know, massive amount of place. Like in New York City, you could walk in two or three minutes. You could pass multiple places to send money. And that exists all over the world.

That costs money to support. Those stores don't do it for free. They have someone there counting the money. There's computer systems involved, all that. So it costs something to do, and it's not provided by free for the government's. Banks provide the service. But it's not a core business of theirs. They'd rather make loans and take deposits and get interchanged and 50 other things before this.

So it's not something that they focused on. So that lack of focus and not having a subsidized service provided by governments, at least none that I'm aware of, has created a niche, a narrow niche MTS, money transfer, service business that has existed for a very long time. And I generally speaking, I think they do charge a, you know, a relatively good price for the service that exists. That's to have money instantly show up from one currency and another currency halfway around the world efficiently easy. You know, that takes money to invest in that. And, you know, to some extent, I, it's, there's a lot of costs embedded.

So, really is revenue per transaction, about $9. Most of, there's a lot of cost and overhead that kind of go into that nine bucks. So that nine really can't go to zero, right? It's like if you're in that business, there's a lot of cost being in that business. So, you know, and look, we had a filing position on a company called Zoom, XOM, not Z, XOM, about 10 years ago. We kind of delved into this a little bit when we were talking about, zometry, you know, a couple months ago in my experience and why that market took so long to kind of turn over and to go digital. So we have a lot of experience in the business. The conversations

back then 15 years ago is like they're not dissimilar to some of the questions you're asking me and yet here we are. Western Union, you know, has started to decline that the store cash-based transactions have gone into decline. Perhaps terminal. decline. I think that's likely, though. You know, you don't know. There's some volatility in that. But that business is still around cash flowing all these years later is quite incredible. So I don't think, I don't have any fear that like fees are going to like melt down to zero. I can get into cryptos as well. And you may have to remind me of some of the counterpoints that you gave me. The reason I know about Bitcoin is because when we were doing research on Zoom, someone said,

hey, you know, Bitcoin's going to make Zoom go to zero. Like that's, you should be aware of that. Bitcoin was two or three hundred bucks and I bought some just to understand and see how it worked. You know, and I obviously wish I bought a lot more. And I'm kind of a, I'm not a non-believer in Bitcoin. I've owned some for a long time. But, you know, with digital currencies, you know, one thing I quickly found out is that

there is friction in cryptos, right? it takes time and there's some risk involved if they're not kind of tethered to anything in getting them from point A to point B. Once you introduce time and risk, someone's got to get paid. So there's fees on them. And I actually have a contrarian view that a stable coin to some extent could be an accelerant to Remitly's business at one point. I'll leave that for later. But on the received side, you, like I said, these are paying, the value has to be in a form fiat currency that can pay bills. And so, you know, I suppose in the Philippines, when the utility starts taking Bitcoin payments, that might be an issue. Maybe that'll happen.

But I think that's a ways off. and the uniqueness of, you know, these services, and remitably is included, is the speed at which they operate in the utility of the currency on the other side. That's what people want. You know, these aren't Bitcoin enthusiasts, you know, running around, you know, moving funds all over the world. They're getting currency in and they're paying bills.

I think you said one more factor, you know, tell me what thing you asked me about. address. I kind of did the crypto. That was going to zero. I can't remember, but let me go to another question that's kind of weighed on my mind as I've been looking at this company. You know, you and I were talking offline. We mentioned the way we probably transact with each other. You and I go out to lunch, I pay, you send me a Venmo for half of it or a result for half of it. That's not how you can do international. But I'm

worried that taints my brain here. But let me ask the question. I was reading a conference that the CEO was at recently. And multiple times he talked about how important trust is when they're building these things out, right? And it was hard for me to understand trust when it came to remitly. Like, I do know 20 years ago, if you were walking into a drug store or a bodega, whatever, and you wanted to send money internationally, right? I could see, especially if you were in an international country or something, I could see how seeing that big Western Union or MoneyGram sign, like that would install trust. There was no internet or anything. It's hard for me to, and maybe it's because I've never sent one. Again, maybe it's because I use Venmo

Wendell. It's hard for me to understand how the trust factor plays into remitly versus competitors or even just remitly in general. So could you talk to me about that trust that they build and how people know? And it might just be, again, because I don't know anything about sending internationally, but how does their customer base, like, kind of trust them and how does that matter with this business? Yeah, well, you know, look, we've had some lessons in the financial you know industry we had some bank failures trust matters right first republic kind of failed i oh someone trusted that bank oh it failed where's my money how you know what's going on and we might insured all that kind of stuff so you know even people uh that that have plenty of money have to think

about you know trust and the financial viability of the institutions that they kind of rely on to kind of move about the world you know from time to time but for for for these kinds of customers I think this is like front and front and center it's it's it may be a pretty large percentage of the their paycheck that's going back home to pay bills so they care about it's not like they don't care about four hundred dollars it's a pretty big number to them and and the person at home either wife mother family member or something that that's receiving it they that's a life line to them it matters a lot the number one call that you get in customer service for all the remittance companies is where is my money so you know so it's like

if you said $400 and it's on Monday and it's expected on Tuesday but it gets pulled aside there's some fraud concerns or something like that happened or you're using ACH and it slows down or something and then a weekend you know the difference between someone getting in a Tuesday and that following Monday could be massive to the person on the receive side so I think the the massive. The massive This is the potential magic that Remitly is delivering and then even years ago when we own we own Zoom that we were very focused on, which is that that send that works just perfectly. It's a send swipe of the phone instantaneously shows up in India or the Philippines or wherever it's going. It's confirmed to the receiver. They have it and it happens like that and it just gives that person one less. thing that they have to worry about that they might have had one bad experience once with

Western Union or remail or Zoom or anyone, right? Some transactions kind of just get pulled out. There is a fraud component here that's very, very kind of important to the digitization of this business that is completely different than legacy providers. But when you have that magical experience, yeah, you're going to be price sensitive kind of on additional transactions. But if that works really well. That is just one headache, one hassle on a large important amount of money, a lifeline sent back to home that matters. So it's price matters here, but it's not like, it's not like how you and I move money around. It's completely different. And it's very different than Wise as well. Wise is doing big send amounts, 3,000 pound movements from expats that are

kind of living in Spain, but are UK residents and moving or money around like that. This This is completely different than all that. This episode is brought to you by TIGIS, The Future of Investment Research. Look, if you've been reading my newsletters, you know how often I rely on Tegas for my research. I probably read one or two expert calls a day, you know, probably average seven a week off of Tegis. They've got the largest transcript library in the world with over 75% of the private market transcripts. Whether you're curious about AI, biotech, or any niche market, TIGIS has the insights you need. What sets TIGS apart is its all-in-one-pack platform.

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Trust me, once you try Tigis, you'll never look back. I'm going to come back twice a second, but you said this is complex. There was a quote from the CEO at a recent conference where he said, it's easy to overlook how complex digital disbursement is to do the right way. It's much different than domestic where you can kind of plug into one local payment rail. I mean, that's the Venmo example I was talking about. Could you just talk to me a little bit about why aren't there, I mean, this company is

growing, I want to talk about growth returns like capital and everything in a second, but, you know, they say, hey, we're getting 6x, our customer acquisition costs in terms of lifetime spend. They're growing 30% year every year. I mean, those are pretty attractive characteristics. Why aren't you and I? Why isn't every person who's in finance who can spin something up? Why aren't they trying to recreate this network? Like, what is so difficult about doing that U.S. to India Railway? It can't just be back office, right? Like, I'm trying to drive into, I know they'll do cash where the receiver is, the FX, all that. Like, what's so, why is it so complex to do digital disbursement the right way?

I don't know that it's terribly, terribly complex. I mean, how complex is it for, you know, to set up a website that can, you know, book inventory and, you know, at a hotel room when you go on vacation? I wouldn't say that's terribly complex, but we know it's turned into a business that, you know, has a couple dominant players where there's massive, massive scale that's involved in, you know, and making that service kind of work the way, the way it does. There's a variety of things going on here. If you look at the legacy model, it was kind of magical, right? If you bought Western Union in the 70s, I know that I think it was part of a company went bankrupt and it got carved out of that.

It eventually became public. But Western Union has been doing big cash flow for multiple decades. It used to be a growth company. It's paid a lot in dividends and all that kind of stuff. And they had this magical kind of component to the business, which is they had this big, kind of network with massive scale that was very difficult to replicate. Yes, exactly. Yes.

And then the very, and that the utility of that network, meaning like I just said, I can walk out my building and in two minutes I can walk past a couple of places that do these things in any major area, secondary area, anywhere in the world, I can move money around instantly. All they have this crazy good funding mechanism, which is cash. People came up with cash, as long as it was counted accurately. on the received side it could essentially show up anywhere around the world on their on their network instantaneously and that that was an awesome business so i mean i think at the peak they cobbled

together 11 or 12 percent of the remittance market you know that was their share the by far the biggest player um and you know i think that's starting to fraction now with the with with the digital kind of market but i could ask the same question then well what made western union have such a high market share. Couldn't anyone do this? Like, you could and there are secondary players, but to do it at scale and do it at that size with, you know, maximum amount of utility is, you know, it's not an easy thing to set up. Same thing is true of Remedley. It's not a super easy thing to set up. Now, the points of pain in the digital, in the digital market, digital model are very different than in the legacy model, one of which is fraud. I mean,

you have scale at fraud with Remedley. They have to deal with scale and fraud. which is a professional, professional cybercriminals that are trying to rip them off all the time because it's way better. If you have a stolen debit card, it's way better to cash out than to receive some product. I'm letting me buy a bunch of things on Amazon or whatnot. We all know that kind of what happens. But they get tested very, very aggressively here all the time by professional criminals all over the world. And, you know, that's a completely different, completely different thing than the legacy model. Now you can't just roll into that and do that super easily. And then the other thing are all these, you know, they have enough volume now where instead of going through

intermediaries, they're going directly to the banks, the banks in Italy, the banks of Philippines, the banks in Mexico saying, hey, you know, we're sending you a lot of money through this intermediary, let's have a, let's have a direct connection. Let's start dealing with that way. It has this very interesting effect of making the product better for a variety of ways and also has a profound effect on on on their working capital and and funding needs in a very positive way and they've been building up to the to these to this scale for an awfully long time we met with remitly when it was a private company probably 12 years ago you know they've they are now the the company to be zoom was at that time it was it it got bought by PayPal and the entrepreneur wasn't

involved anymore and PayPal did what it did with many companies and kind of ran it in into the ground to a certain extent, it exists still, but, you know, remitly took that pole position. So, I mean, I'd say it's like, you know, without getting into too much detail, it's like a lot of different businesses. It's more complex when you kind of, you know, when you look underneath the hood. This is actually, so the two things there are the things that I was trying to hit at that hadn't clicked for me until you said him, but one of them was fraud, because I was just kind of thinking about fraud, like, oh, you've got to stop the Russian oligarchs for money laundering, illegal money, or, you know, you've got to stop.

Basically, that sort of stuff. I hadn't thought about digital fraud where, hey, if somebody's got 100, you know, Amex gift cards that they've stolen from Walgreens or something, right? Or as you said, fake debit cards, whatever it is, you've got to be able to stop them because if that goes through and they're taking out cash on the back end, that is cash, you're never going to get back, right? And this is a 2% margin business or they're charging 2.6% fee. So if every transaction is $100, you're charging $2.6.

if one $100 transaction goes through, that cancels out, what is it? Like, 50 of the- 100%. And I just, it hadn't clicked for me that, maybe it's because I'm not a fraudster. I hope, you know, fingers crossed, but it hadn't clicked for me that so much of this business is going to be stopping people from trying to take money that they didn't have and send it across. I mean, I had more thought about it from the taxed K-Y-C angle. And again, that might be because I generally deal with slightly bigger dollar figures.

And people are, you know, a bank, a $10,000 transaction, they're more worried about KYC money laundering, tax reporting than they are, this person stole the $10,000 in cash or something. There's a constant game of cat and mouse between the professional criminals and the remittlies of the world. And it does, and then again, this has a very profound effect on the quality of the service, which is most of the fraud occurs with first sets. second and third sense not as much right because that's a known customer you know who they are and you know there's been no problems it's those initial sense now everyone's out trying to acquire customers right and they're spending aggressively to do so including including remotely well a lot of times in this is you know people will not get this right if you look at who the lowest look at the various providers who's offering the lowest cost typically it's the person with the

lowest fraud controls and what they're doing is throttling back the speed of the service and showing a low price, but then you've got, you got two completely different services. I've got remotely offering an instantaneous service, and I have the other one offering a multi-day service or even longer potentially, if there's a weekend involved, and offering a lower price. Now, you really can't compare, that's comparing apples and oranges. But the real kind of tension is, is you want to give that really good first swipe, perfect experience to as many people as you can on the initial sense. This is where the fraudsters come in.

So I don't know this number. Remitly won't give it to me and even Zoom wouldn't give it to me back then. But what percentage, if there's a thousand new customers this week, what percentage of them are getting your best gold-plated instantaneous movement of money globally around the world? My instinct is that Remitly is doing a better job of that than anyone else and the legacy companies who are much less experienced,

you know, in this kind of thing, the tech-focused companies are just going to do better than that. They may be doing an order of magnitude less on that. And then it has these huge effects on LTVs, customer retention, all that kind of stuff that gets into,

well, it can remitly, and I believe this is the case, can remitly justify a much more aggressive customer acquisition costs spend than the next person, even though they're showing a lower price. So there, you know, and again, that's another,

like peel back the layers, kind of look at the complexity here, if, if, you know, if Money Graham is is giving 20% of their new customers in a digital environment, that best, that best service, and Remitly is doing that at 60%, well, you could drive a truck in that. And you could, you know, and you do that at scale, like you can see, well, there's a massive difference. So I, I know Remittly is outperforming on some of these metrics. I don't know how much buy. Money Grimm's giving their first 20% of their first customers instantaneous and Remitly is doing 60% instantaneous. I agree that's a big difference. But if you think this is a customer lifetime business, right? And the average customer is going to do, I mean, Remitly has a slot. I can't remember at the top of my head,

but showing that, you know, people from 2020 are still sending on a, if the average customer is going to be doing five, ten, dozens of transactions with you, does that first transaction being instantaneous really drive that much value? You know, if I, if I come to, you and I'm Western Union. I understand their fees are higher. But if I say, hey, remotely charges 2.6% and it's going to be instantaneous. We charge 2%, but your first one is not instantaneous because we need to like do a lot of fraud checks and stuff, but then everyone after that is. I don't know. I don't mean to laugh at you, but you know, that's a more complicated advertising message, right? Well, you don't even have to advertise that, right?

You just say, hey, send with us with 2%. And then when they send it's for the company, try all sorts of promotions. First, first send is free, but it's slow. I didn't literally say that. But, yeah, but you know, you're, you're remotely on their website has first send is no fees on your first send. I was looking at their website earlier. There's a variety of promotions you can, you can kind of do to try to, you know, increase the retention of customers and give them a really good experience. But, you know, they're, look, they're starting to add some serious scale. You know, their growth and send value, volume this year is greater than Zoom was doing in 2016. So they're growing in excess of a 2016-16 Zoom like every year now, which is kind of, which is kind of good.

And like, you know, this is a scale business. So they're going to be like a billion dollars of gross profits. So that gives them a lot of room to invest in the product to make it better to advertise. The industry, generally speaking, this was true at Zoom 2, justifies their paybacks on, you know, a five-year lifetime value. Yep. customers stay for longer than five years, you know, and then can they bend the curve on retention as they make the product better? One of the, you know, interesting thing is that the product gets better and faster and more robust with these direct connections with the banks. You know, that has an impact on everyone.

This is, it is a game of interest. It's like they're doing 25 different things better than the next guy. And I will say one of the really interesting dynamics here is that the competitors, you just, you analyze each competitor, the legacy competitors, they're just not going to be able to respond. They're going to respond like the legacy competitors of Netflix, the legacy competitors of booking.com and Expedia. You can kind of just go to the list. You know, MoneyGraham went private, so they have a bunch of debt. They went private with Madison Diborne, Dearborn. Western Union's got a big, you know, big, big, dividend yield. You know, these are all profitable businesses.

Western Union is not going to have permission from its shareholder base to be like, you know, I'm going to destroy profitability this year because I want to kind of be on the right side of this. They also can't because they've got all the, you know, the bodega down the street where I can go and I can send through Western Union. Like they have to be able to give them a cut of what I send. And if they cut their bees, there's classic, classic channel conflict here, which was the, the store base network does not want to see lower prices in a digital environment. They're, they're providing a service because they get a commission for it. And then they want people in their store stores buying things. and that's kind of been the traditional business.

And actually Western Union, the percentage of commissions that they pay out to all their partners all over the world is actually gone up slightly as a percentage of revenue, even though the business has kind of begun to get smaller. And certainly the store-based business has gotten smaller because they have kind of a growing digital business, but now a flat to shrinking store-based business. So I want to talk about the, you mentioned Game of Inches getting better.

The company in an interview was talking about their fly wheel. I want to talk about that in a second. Let me back out the second. One friend when I said you were coming on, he put it to me like this. Hey, this is a company growing 30% year over year. And we can talk margins. We can talk about that. But this is a company growing 30% year over year that's tech or tech adjacent.

That's trading for two-time sales. How many companies growing 30% year over year do you know that are trading for two-time sale? So I guess I want to ask you, I've reined at the beginning, what is the market seeing? What are you seeing that the market's missing? But I just want to ask you, like, what is the bear case here? Why is this trading at two-name sales? Like, it seems kind of crazy. What are people worried about?

Well, I'll take a crack at that in a second, but I do want to say, like, look, you said, sorry, repeat what you just said again. It's trading at two-time sales. It's worth of 30. And I'll just add, I think it's down 50%. year over year. So it's like it's growing rapidly. The stock price, you know, we haven't talking margins or anything, but the stock price looks cheap. And it's, if you said it was that four-time sales and it was trading, it was growing 30% to be like, oh, that's kind of cheap. But it's 15% down from there. I'm not thinking about multiple. I wouldn't, I wouldn't consider

remitly or buy it based on multiple sales. For start, they're spending, they're going to spend 200 million plus on marketing, a little bit like some early days on Netflix. If this model is profitable. already profitable. You know, just the little fact is that you spend to acquire a customer, you spend a bunch of money and you get a fraction of revenue gross profit from that kind of in that given quarter. So just growth is naturally suppressing profitability. If they gave up on growth, they would be instantly profitable. So this is a profitable business. I don't I don't have any doubt about that. What I think about what gets me interested is that, you know, the incrementality of like the next 25 million of send volume that goes over the rails. That's going to

in at a higher margin and higher profitability than the prior 25. It's going to get layered in. And they have started to leverage, especially ex-marketing, all their ob-X costs. And I think this is the part where I think, oh, man, they have a shot at being the kind of booking of the space. They have the, you know, they have the fan dual kind of potential of the space here. They're going to make it really, really hopeless for other competitors that just won't be able to leverage expenses like that because they won't have the scale.

And this will allow them to be even more aggressive on marketing, acquire more customers, and not even more scale. I think longer term, two things. I think Western Union topped out 11% or 12% market share of global remittances. I think the scaled digital version of that company, like the apex predator of this space, is going to exceed that market share. So someone, probably remittantly, maybe someone else, is going to accumulate mid-teens, high, 18s percentage of the global route and smart. I believe that's, you know, and there's lots of, right, that is not a, shouldn't be an aggressive thing to say.

Lots of digital transformations produced higher market shares in a digital environment. I don't think I'm going on lips like that. Secondly, I think Western Union's gap operating income margin probably topped out in a low 20s. Currently, it's probably 19% or something like that. The CEO, Matt Oppenheimer, has made a couple of comments. comments that he thinks ultimately he's looking at a margin that exceeds that and i i think that's probably on the table here um there will be a question of like again they could be profitable right now like you know they may not show their their all their teeth on profitability at the same time

but when you have your boot on the neck of the competition do i want you to do that like no i don't want you to do that i want you to keep growing i want you to demonstrate some discipline i want you show me scale and they have the past two quarters on an operating basis that they're starting to show that and i will say that you know we bought the company in the depths of 21 or maybe early 22 it came public at like i think 43 bucks it got down to like seven or eight bucks and we started buying it and i had experience with with the industry and you know talked to them some and it went to mid to high 20s and rare for us we completely exited the position usually i'm not super good at that but I did in this case. And now we're back down to like the kind of low teams. And we just in the

past couple months, we've been very aggressive. We spent a lot of time on it. You know, the business is bigger too. So I think the valuation is not that much different than kind of when I bought it the first time. But I am I am like drooling. I'm like my chops or like what I can see the meal. I think there is going to be a potentially a really nice stake here. I can just see it. It's coming. So the last two quarters, you could just look at it. Look what they're starting to leverage those leveraging SBC, whatever.

They had this uptick and fraud. They had like $4 or $5 million of incremental fraud over their usual fraud rate, which, you know, I think they usually run between eight and nine bips. So the send value, it ticked up to 12. They said they solved it. They had some new de novo attack that came in that, you know, it's part of the business. you got to figure it out cost them five million bucks if they if they kind of hadn't had that happen and that does happen from time to time as part of the business it's part of what's mixed the barriers to entry high they would have had this gap you know this their gap operating

loss would have been tiny so they're scaling towards gap profitability when they took took this unexpected hit on gross profits so i i see it i think it's coming so i'll say a little bit like uber like that was an aggressive call we made on our on our little first podcast with you i think that was the summer of 21 and i'm like i can't see how this isn't profitable remitly is more along the remitly is profitable now you know if you if you want them not to grow they're going to be profitable they're scaling fast and i think honestly this will sound really aggressive but i feel very strongly about this that it's already lights out they already won it's kind of over already like the outcome is is kind of known now some competitor

their Western Union, someone could get frustrated and say, I'm going to, I'm going to get really aggressive on advertising keyword buys. I'm going to lower pricing all that. Remittly's down 20% that. Maybe WISE says, hey, we're going to enter this market. I don't think they will, but, you know, maybe they do. But very, like these legacy guys, I'll exclude WISE for a moment from that statement. The legacy guys' ability to sustain a price war and ad war against remit. now is like rapidly rapidly diminishing. It's kind of already almost too late. If

remotely grows a couple more quarters at this rate, I think they can. You know, I'll call this rate kind of mid-20s, low 30s. Like it's almost done. And that's the part that's exciting to me. I think it's kind of almost obvious. I'm a close follower of the business. I follow this industry for 10 plus years. So that'll sound aggressive potentially to other people. But I think they're just about there. It's almost already too late, almost. No, I'm just laughing because you started off by saying our podcast on Uber,

and I remember like Uber at the time, even when we did it, there were people who are like, hey, I don't understand how this can be a profitable business. They're burning so much cash. These guys are crazy. And here we are. I think today, our friend Modis had a tweet that said, hey, Uber is going and raising like long-term, basically investment grade.

bonds and the use of proceeds is to buy back chairs, right? Like, they're a levered capital return story, and that happened in three years. And I'm just, you know, if I'm pattern recognition, my Maro Sibeli pattern recognition here is Mario said that about Uber right before they flipped when they were still growing like crazy. I mean, summer 21 was a long time ago, but, you know, that was growth mania summer. But he said the industry slipped. They've won. The competitors just don't realize they're dead.

And here you're saying the same thing, right? Like, that's my pattern recognition. It's, hey, Raleys won. They've hit the scale. As the CEO saying, we've hit the flywheel, we're better than our competitors, we're growing. And now it's just about proving out the margins in three years from now. Maybe we're talking about Raleigh, putting out those 10, 15-year, 5% bonds to just use the proceeds, buyback shares. Yeah, look, I got some things wrong, so you'll have some listener point out, oh, my stitch fix.

And yeah, Stitch fix, I got wrong. That one kind of suck. But, you know, the react, you know what Stitch Fix was for me? I bought it 28 and I sold it 22. the worst outcome. You know, my big mistake was like not being selling the shares, you know, after they went from, you know, 28 to 30 to 40, 50 to 100, something like that, you know, and that was this mistake. I make some mistakes. But, you know, I'm not, I'm not backing down on this one. This company has an unbelievable opportunity. They're going to be putting on so much scale

that it's just going to be, I think it's going to be terribly difficult to compete with them, you know, like time stamp that you have mentioned why we have mentioned wise a few times in passing and I just want to ask because you saw it on Twitter I saw it in the comments I was getting back the most frequent question I got here was not Western Union it was not competitor it was not general competition it wasn't fraud rates it wasn't hey yeah they're they're profitable on an adjusted basis but there's a heck of a lot of stock comp here none of those were the questions the most frequent question I got was I think there's a lot of people who really like WISE. I really haven't researched their company. So I don't know. I think there's a lot of people who really like

Wise and they were saying, why doesn't this become a knife fight between Wise or Remitly? I think a lot of people think Wise's fees are cheaper. And they say if this is a knife fight between WISE or Remitly and WIS's fees are cheaper, why doesn't Wise kill Remitly adventure? So I know you've got a lot of thoughts on that. We've started alluding to them, but I just want to give you the space for that. Yeah, I think. And look, I met to the investor relations guy and sat and had breakfast with a wise IR person. This is a successful organization. They're good. But it's a different market. And just for starters. So, yeah, you know, Southwest and Spirit Airlines have the lowest prices, right? So they're going to put everyone out of business, right? That's how markets work all the time. Well, Spirit's out of business.

Though, you know, it's funny, you mentioned that Spirit is going out of business in part, in large part, because United and all the other guys copied the Spirit business model, right? But they segmented it. They said, okay, everyone rose 5 through 25, we're going to let people buy the Spirit model if they want, but then Rose 1 through 4 is still first class. So we've got this very high, very high margin business that we're using. And we fly the Spirit for rows 5 through 20. we get the big profit pool at the front, so it's the best of both worlds.

And spirit that was low margin all across the board could not keep up with them. I don't want to talk about airlines, but that's just to say, like, you know, just for starters, lowest price doesn't always guarantee success. Now, what's price here? You know, that WISE on lower send amounts, which is present in their remittance business, Wise has inline fees with the rest of the industry. Their bread and butter are big send amounts. I think their average send amounts like over 3,000 pounds, right?

Remedly's average send amount is $400. It's just night and a day. So that's like a 10 times difference in the send amount. Wise has lower take rates at very high dollar amounts. They don't offer the cash payout network that you have to be in this business. You know, a substantial minority of Remitly's transactions are still being cashed out in certain markets. I think like the Dominican Republic, like they'll deliver cash to your door. like there's a huge demand for cash still that's how people do that that's you know not that's

not true in india you know and then you know do the wise shareholders with all the runway that they have for growth and everything like that in their poor business i think they spend 40 billion sorry 40 million pounds a little bit less than 50 million pounds you know on on marketing last year you know and are very profitable you know if they want to get into this this low send amount immigrant population you know they're going to have to invest a lot in advertising and that's I think that doesn't even kind of fit with their core business. It's like it confuses kind of the brand image that they have. Like I just don't think there is so much white board left for both these companies in their,

in their separate niches that they won't even see each other for years potentially. You know, maybe they're good merger partners one day, but they're just completely different businesses with completely different customer bases. And, you know, like, Wise could have gone after Western Union for the past, you know, I don't know how old is wise. It's at least a decade, right? It's been around for a while. They could have gone after Western Union's business,

and they could have done a digital version of that and really try to compete in the remittance space, but they haven't because it's a, it's just a very different business. So to me, it's, it's not even something I actually worry about or think about much at all. I think the more likely kind of bear case is that you'll have some headline risk that someone's going to get,

one of the legacy guys will get desperate. Maybe they'll cut their dividend a little bit and then they'll, they'll try to cut some costs and then invest in it. And so they don't take it right on the chin on earnings and cut the earnings in half, but they'll try to compete for a while. But it'll be unsustainable because meanwhile, Remittly is getting bigger and bigger and bigger. And all that OpX leverage that we're starting to get, they'll be like years behind us on that. So I think it's going to be a tall task for the industry, the, you know, the legacy specific money transfer. for services to kind of respond without absolutely gutting their earnings. You know, then, you know, how many times do you see the legacy cash cows kind of like,

let me gut my cash flow and really go win this, this new market. They're always negotiating. They're always like, well, let me try to win it and do a little bit, but I'm going to keep my earnings and keep my dividend, you know, shareholders happy, all that kind of stuff. So I think when you when you kind of play it out and play it forward, it's there, they'll be some competitive incursions and bad. headlines under you know for remitly over the years just like there was where netflix just like there was for any of these other companies uber anything but when you when

you kind of play it forward i think i think the legacy guys they it's too late they're they should be kind of milking their business as best they can you look with the companies are headquartered denver you know chicago miami you know this is like this is a tech hub this is a tech center you know remitly is hiring from amazon and and other companies like that they're getting very very competitive people it's a great great kind of place for for the company to be to be headquartered so i mean i think they're on the they're on the bleeding edge they're on the very cutting edge of things and that's tough for legacy guys to compete with and wise you know wise is doing a great job in its market um so you know maybe the maybe they'll bump heads one day but i i don't

think there's anything there's so much more there there's there's there's a lot of meat to kill before these companies kind of run into each other you mentioned i think i have the number right i'm trying to flip through the earnings marketing expense where is it uh 218 million of marketing expense in 2023 if i remember correctly what are they what are they spent i Sorry, it's not if I remember correctly. I managed to find the slide in time. It was $218 million of a marketing expense. What are they spending all this marketing expense on?

You're paying the gatekeepers. You're paying, you know, meta and you're paying Google, right? You're doing that. It's all digital advertisements. And again, I've never seen one. But as you get more scale, you can kind of be, oh, let me put some out, put an outdoor billboard up. I'll do some radio and given markets.

I'll sponsor this. I'll sponsor that. I'll sponsor the Caribbean Day parade or all that kind of stuff. anything like that. One of the interesting thing is that, you know, we're remotely spending more than Western Union at half its send volume. It's kind of interesting, right? You know, that's that's that's that's that's that's pretty aggressive. And it makes sense in these markets. This is a this is a market that's getting in the process of getting tipped over. People are going to kick back and be like, oh, you know, it's tipping my way. I'm

going to, I'm going to me let me be super profitable and grow at a, you know, 12 percent. No, they're be more aggressive than that it's a more competitive place i have a better service it's cheaper it's faster when i get that magical first send people get really pumped and they never go on back they're never going back to a store i'm going to accelerate that i'm going to spend a lot of money invest a lot of money with google and meta and whoever are there anyone else how else do you acquire digital customers that covers like 80 percent of it or something like that and you you you accelerate all that now that magicists are starting to get leverage on that they're going to be able to justify spend that no one else can and i hope i want remitly to be spending half a billion dollars on

ad spends soon not marketing ad spend because that means that they're going to be able to justify it no one else is going to become remotely close being able remotely close to justify it and they're going to be taking all the oxygen out of the room they're going to be like everyone else is going to be gasping for air and they're they're going to add scale and scale and scale and you now you've i've just described booking you know booking.com 15 years ago spent you know a fraction of what it's spending today on ad spend. And it's percentage that it spends, the ad spend over revenue has gone up significantly.

But they're operating margins have gone up way more than that. And that's a beautiful thing. And they're essentially boxing everyone out. And I think that can happen here. I think that that is a, you're predicting the future. You're trying to see around the corner, so that's tough. But I'm like, it's not like, it's not like, one in a hundred. It's not like one in ten. I think these guys have a pretty damn good shot of

goal at having some kind of outcome like that. And yeah, like if some if some crazy kind of billionaire wants it like, hey, I want to be in this business suddenly and come in and try to spend a bunch of money to do it. You know, that could happen. You can kind of say that about anything, right? The nice thing about the billionaire is because it takes time to acquire these customers, you know, if you wouldn't spend a billion dollars in marketing next year, right? So you three-x what Remitly is going to spend. You need to inquire customers when they're ready to send cash, right? So any new

immigrants that come, any people who are already on the Remitly system, like, it's going to be very slow going. Yeah, you're going to destroy Remitly's margins in customer acquisition for next year, but it's still going to be very slow going. I guess the other thing, you mentioned sponsoring the local parade or radio ads.

One thing that is interesting to me with internet businesses when they hit scale, and I've thought about this with draft kings a little bit, as you said, the best way to acquire customers is Google, Facebook, meta, whatever. But if you're a startup, you probably can't afford a TV buy. And I've thought about this for Draft Kings, because Draft Kings partners with ESPN, right? They do segments, Draft King sponsors, this segment and stuff. Like, if you're a startup betting site, you could start up a local betting site in Rhode Island

or you pick your state, but you can't go get that sponsorship with ESPN. So, you know, in that way, scale, but get scale. and it kind of crowds out new entrants because you've got this really interesting advertising customer acquisition tool that they simply don't have. That's not to say Google and Facebook click, those are your best. Obviously, those get you people correct. But that type of, hey, go make this bet on draft kings, the ESPN special, you know, bet on Boston and Philly tonight. You don't have that with if you're a small guy. And with Remitly, you know, as you said, sponsoring the local radio station.

I could see a lot of these, and not just serious, but a lot of the immigrants who are working in, you know, a DoorDash type. job and they're hearing radio stations when they come in and out of the restaurants that they're working in. I can see a radio station ad saying, your next transfer with Remittly, like Remittly can afford that and your local startup cannot. So I ran about a lot there. I'll let you throw any comments or anything that I'm kind of softballing some thoughts here to you. Yeah. This, I'm not going to be convinced otherwise. This is a scale business. It's a service business. There's not like a supply side constraint to it. So it's pure service. It's in the process of transforming digitally. So it really is going to be scale, scale, scale, scale, scale.

I remember Reed Hastings telling me 20 years ago, he's like, we're not going to have a competitive advantage. It's only going to be scale. We're going to be the biggest buyer over the globe in every relevant country inside who'll be buying more content than anyone else. And that's going to be our, you know, that's going to be our barrier to entry. And, you know, lo and behold, it's kind of true. and all the legacy guys are still struggling, struggling to figure out how to kind of compete with their scale. Same thing happening here. This business, it's a game of interest.

There's going to be a lot of things you've got to get right. There's a lot of complicated things under the hood. But, like, the scale player is going to be, they're going to be nasty. They're going to be vicious. They're going to be so hard to compete with. And so there's some other dynamics here. I would say that I like, which are very important,

which, you know, we only have. I always go over your hour, you know, so. And I always enter by saying, hey, I only go well over an hour because when you know I'm enjoying a conversation, which I am. But today I'm going to have to have a little bit of a hard stop because I've got to go see the baby girl before she goes to bed. But I do have two more big questions. And then I'll let you get through anything you let me do the question. I'll say real quick. I was going to be a look.

This is a mission driven company. This guy, Matt Oppenheimer is not in it only for the profits. He passed on his two option grants, you know, RSU grants or whatever last year and this year to kind of help out the overall pool of the company. I like where the company's headquartered. I like Seattle companies. You know, you get the West Coast kind of sizzle without as much swagger and bullshit as you might kind of see in the valley. They have a single class of shares. Like you don't see that anymore, right?

Single class of shares, I got a I got a founder with a significant stake that is very valuable to him. them. They have a large anchor shareholder in the in the form of NASPERS, which is great. We are hoping for, you know, I think better disclosures with management would go a long way with the shareholders. And, you know, and I hope that they get there on that. They made very good long-term decisions. So, you know, away from the business and all the details that we've talked about, like there's some really good things here that you just love to see that make you think like you're investing with this with the founder with the entrepreneur you know do i worry about him selling the business out or going private or something like that i do not at all i don't think

i think it would be difficult to justify it kind of in the current situation but zoom did sell and i don't want remitly to sell i want remitly to execute execute execute and just be you know get bigger and bigger let me ask valuation what are we playing for like you mentioned you bought in the doldrums in 2022, you sold them in the mid-20s as we sit today, I think, was the stock 14, I think. But how do you think about valuation here, right? Like, what is a fair value today? You could go out a couple years, you know, you can pick your rate of growth, you know, maybe pick mid-20s, low at 20s, maybe you pick high-20s or something like that.

And you could say, like, let me give them, you know, let me take them to the margin that the CEO described over, you know, past a couple years, you know, the in excess of something, that a Western Union does. You can kind of do that and you're like, oh, wow, they can earn a bunch of money, right? And they are going to generate a lot of cash too. So there will be cash, you know, that kind of gets put under the balance sheet to do certain things, to acquire more buyback shares or whatever they're doing. You could do that. You could also just say, hey, let me, you know, for shits and giggles, let me cut out, let me do a maintenance level of, of ad spent. How profitable could they be right now? And you would see that that would give you some bolster

underneath your current valuation, which is what $3 billion or something like that, you can kind of think about it that way. But I think like, look, Uber, when it made the transition from, you know, unprofitable, you know, gap loss to kind of EBITDA positive, free cash flow positive, to gap break even, you know, free cash flow positive gap break even, now gap profitability, now somewhat substantial gap profitability. It has a tremendous effect on the market's mindset on something like that. I can't see how remitly, the only way that they don't do that, they're going to grow faster than I think, and they're just going to step on the accelerator and kind of throttle back profitability for more growth than kind of I might model. I don't think,

you know, I think they're going to be disciplined and show both, but they're going to make that transition. Now, when you make that transition, and you're still growing and you're taking share and you're considered kind of the disruptor, you know, dejure, you're going to get a, you know, likely, I don't know what the environment's going to be a couple years or not, you're likely going to get a pretty nice valuation. People like those kinds of businesses. And I think that's what we're looking at with remitly. So in all those scenarios that I just described, there's plenty of room for nice RIRs without me being so specific on how to get your target price. No, I hear you, but let me propose a different way. I mean, I mentioned again,

My favorite question I got was somebody who said, hey, tech-adjacent and forget margins all that. This is a business that's growing 30% year-over-year, and they're trading for two-time sales, like what tech-or-tech-adjacent business does that? But I guess just another way to frame it, right? So let's use two-time sales, and we've said a few times that Western Union was kind of running 20% operating margins. You think they can beat Western Union in the long run, right?

So if I told you, hey, 20% operating margins, time point two times two that's eight x if i told you hey i think we're buying a 20% plus grower for multi years on end at eight x normalized operating profit does that math does that does that sound crazy to you did what where would you push back on that no i wouldn't necessarily uh i wouldn't necessarily push back on that i think you're thinking about some of the that would encapsulate some of the numbers that kind of i'm i'm thinking about um let me search one last question and then i do want to let you because there's several other angles i think you want to talk about that we have a hit but let me search one last question i've asked you

a lot here i've asked you what do you think the market's missing uh you know the most frequent question we got on twitter and i got separately was on number one wise by far and then number two uh why don't just kind of margins and price come down over time i think we've addressed all of those but i just want to ask you, you know, you seem to be worried about different things to market. What keeps you up at night the most when, again, you think you've got another Netflix. You think you've got another, what keeps you up the most at night with your investment in Remitly? You know, the thing that chased us out of Zoom via M&A with PayPal was the slowdown in growth and customer acquisition. It just happened. Ten years ago, we were like, this is cheaper, it's

faster, like, oh my God, like this is going to be a home run. And the growth rate kind of just kept declining and declining and got to such low level that it became kind of a little bit of a value stock and was acquired. And so, you know, I think that's a risk that something disrupts kind of this tipping point that I think we've reached or maybe we haven't quite reached it. So they start growing more slowly. And then that would that would challenge some of what I'm saying because there's plenty of runway left of them i would say like look there now this fall will be the fifth year of accelerated growth there was a covid acceleration here and we know we know there's risks in code acceleration but i'd say this is the fifth year of growing at high rates you would say at

this point this is a secular kind of win and at the tipping point has been reached and you actually can do some digging on some numbers with western union and a couple of the other ones in the second quarter if you strip out digital from from the legacy competitors you can kind of see that store cash you know the traditional store cash model transactions has gone negative and you know my instinct is is that that will that will continue and we've reached a tipping point and that the slowdown is not going to come this time that's slow down in zoom that was so disappointing it's we're five we're kind of five years into this the fifth year of accelerated growth kind of fall of 2020 I think that's five years.

Here we are in 2024 and this drill going in a fast rate. I would argue like it's the tipping point has been reached. We're never going back. Stores are not going to push back. The competitive pricing headline, we've talked about that. I think that's out there at one point. You know, someone, you know, targets this market. Maybe Amazon thinks it's a great market.

Amazon's coming, like something like that. I just don't think that that will not be sustainable or realistic for most of the people that would be the ones most likely to kind of make that. Here's a worry, investment and focus on non-core businesses, which, you know, like many entrepreneurs are like, oh, you know, we have this great customer bases or anything else we could sell them. They have aspirations to do that. I think many of those types of businesses are very competitive. You know, I often say like, you know, the first idea is that.

the best idea the second and third are not so good and i do think i worry a little bit about trying to sell other services to their course this is circle but they're yeah so i i think you know i'm analyzing and excited about the core business but i know entrepreneurs sometimes you know they want to keep moving and always have a couple irons in the fire i think they're going to be balanced around that um and you know they already made some changes there i've a disaster would be like lots of money lots of investments to suppress profitability don't break it out don't get to see me so i don't get to see it so i don't get to see the benefits at that scale that i'm i'm absolutely you know excited to see have seen in the past two quarters and want to see a lot more of you know

that's the stuff that makes it absolutely hopeless for the competitors the hopeless the competitors see that and they're just like oh my you know like i am in between a rock and a hard place i want them to those competitors to keep seeing that dilution stock-based comp you know, there's a fair amount here, but look, they're starting to leverage the OpX line. And just like Uber, there was a lot of SBC there, too. I think management is aware of dilution, you know, at high rates of growth, dilution can be acceptable at low to modest rates of growth, as we found out with PayPal. That could be completely unacceptable and has to change.

I think management is aware of this, and they've been leveraging SBC in the past two quarters. They've leveraged it very nicely year over year. So those would be my top potential worries concerns. This episode is brought to you by TIGIS, The Future of Investment Research. Look, if you've been reading my newsletters, you know how often I rely on Tegas for my research. I probably read one or two expert calls a day, you know, probably average seven a week off of Tegis. They've got the largest transcript library in the world with over 75% of the private market

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You'll find perspective from insiders and executives that you can't get anywhere else. To see Teegis in action and understand why it's one of my go-to resources, visit teagis.com slash value. That's T-E-G-U-S dot com slash value. Trust me, once you try T-G-S, you'll never look back. That's great. There is so much I wanted to say there, but we're running a little long, and I know there's other pieces of the business. So what have we not hit that you think we should have hit that investors who are looking at this company should be thinking about in your mind here? A couple of things. One is the direct connections. And now we had some experience of this with Zoom. direct connections start to occur when you hey i'm not going to use an intermediary to get to

all the banks in india or or europe or western europe or whatever i'm doing enough volume i i want to have direct connections i can approach those banks who would an intermediary be by the way like is an intermediary jp morgan helps you connect to u.s or like who are these intermediate you know i i think what's the name of the company e eFTD euro euro net worldwide i think they do that but there's a couple people that you know have the relationships with all the banks that kind of assist on a wholesale basis of moving funds around i couldn't take them off one by one i was just wondering you they're replacing as they get direct connections now when you do these direct connections with the banks so first of all you know like all think about the complexity of

it like the banks are in varying degrees of of technology readiness um and you're you're trying to kind of make a better better product with them you're trying to get you know the Hours of their bank may be closed and their IT. Yeah. That may not be there. Like you're trying to, all these things are very complicated and they take time to do. But when you get them,

ultimately you can deliver a better product, a faster product. And fast, of course, when I say better, a lot of times, that's just fast, that instantaneous, no,

no question that the funds got there and arrived. Every time you do that, every time you make it fast, you're eliminating that I told you the number. call you get is where's my where's my money one that just popped up to me like it seems so simple but you and i send money to the philippines at 3 p.m. eastern right i think that's 3 a.m. their time it's like the banks aren't open then if you if you aren't a trusted right if you and i had started up our own remitly service and we tried to send that like the bank would be closed we'd have to wait until

they open call them and be like hey accept this so our customer can have the cash instantly but remitly, because they've got that direct connection, you know, it's just a batch in the computer server or something. It's instantly going to pop on. And that's just one, as we're talking, like, it seems so simple. But as they said, digital, when you go international, is a lot more complicated. And that's just one example. But as you said it, it just struck me like, oh, that's a very simple example, but that is part of the power of connection. You start with the big banks and you work your way down in the medium-sized banks, and maybe you hit some of the smaller banks. Every bank is different. And then you have a team

that's doing this. And each kind of setup is going to be different. someone gets new software, that screws things up, you know, blah, blah, blah. Like, it's pretty complex. But when you do that, you start getting closer to that, that magical transaction. You can deliver that magical transaction. You know, they give the example of, like, you put, you know, with a direct connection, I'm putting in the name and I'm putting in the account number, and I miss, I hit, Ms. Key something.

Well, they can kind of intervene in there and say, hey, I think you might have the account number wrong. You're sure about that. Okay, that's obvious. But this is something I just became aware of recent. recently. You know, this is not a bank. They're not lenders, but they do, you know, they do have a financing component to their business, which is most of their transactions are funded with a debit card. The debit card is going to pay them back 24 hours later. You know, to make it instantaneous, you tend to have deposits on the receipt side with some banks and kind of make it instantly available. Now you're kind of getting paid back from that debit card funding kind of 24 hours later. You know, so you might say that's a very, very quick loan, you know, and depending if it happens on a weekend, or there's a holiday and all sorts of things that kind of can make their balance sheet kind of look more capital intensive than it actually is.

Like their net interest expense was lower than net interest income for the quarter. So they're barely drawing their line to kind of do this business. But they draw it occasionally because sometimes there's more demands on holidays and certain peak periods and all that kind of stuff. Just recently, just recently with their scale, they've been going to banks saying, hey, you know, we know you like our deposits, maybe you're earning, I don't know, the rules in each individual company might be earning interchange and whatnot, but any bank wants more deposits and it wants more spending on its cards or whatever things that generate revenue.

Remittly is starting to flip the equation. They're starting to do post-funding paying the banks back after they get, sorry, paying the banks back after they get their funding, i.e., the banks are now starting to do funding for them, which makes it even less capital intensive. Now, here's another element about your smaller competitor or your competitor that's just starting out or doesn't have scale in this business. Remitly is basically can go to a large bank in Philippine saying, hey, you know, why don't you, we want you to handle that. You float that to the remittance provider. They're a client of yours. They're going to spend the money. You're getting interchange. You're getting this and that, blah, blah, blah. I want you

to do that for me. So I think this is unprecedented. And I don't think this ever was present with Zoom. that they're able to flip the equation, to flip the funding back on the receive bank for benefits that they get and doing that to make that even less capital intensive. The new startup, the new guy, the new low-cost competitor, they're not going to be able to do that. They're starting from square one here. So this is just, again, a little element of like, this is more complex than people think. It's not like a cakewalk.

And just to your point, I mean, look, they're sending billions of dollars. I'm looking 40 billion of send volume in 2023, right? Even if you're only funding for a day, 40 billion divided by 365, like that's 400 million of deposits that you're at very roughly, right? 400 million of deposits that you're funding each day. Like that adds up. If remitly doesn't have to fund that, that's 400 million less working capital or, you know, they get the interest.

Like that is a huge needle mover for them. And, yeah, that's something, a startup, as they're looking to grow, they're going to have to fund that working capital and remitly no longer has to. Mario, any last thoughts? I said we wouldn't go too far over an hour and we're starting to get well over an hour. Yeah. I say the last thing, you know, I did this. The last time I did this, I did a little flywheel.

You know, that was an overabused, overused term for a period of time. But, you know, sometimes businesses happen. We did it for elf. You know, an elf ended up being a home run. I used to laugh I was like Elfa beauty company and now when I look at the stock price I laugh at myself because my God

has that been a winner? Well sometimes I look at that and cry you know what we had a good rescue there we had to get pretty involved to help shape a very good outcome so I can't remember the CEO there does not get out of the park and that's great and I remember years ago we sent them a flywheel

and I've been kind of working on a flywheel for remitly and I kind of think that exists which is I told you right up front this is a scale business scale scale scale nothing's going to be more important than that so increased scale that gives them the ability to reinvest some and make the product better and faster it's absolutely a thing and they're and every time they do a new direct connection they're doing that more and more that speed helps get your higher customer satisfaction and better retention you know that plugs directly into higher LTVs and more competitive cacks and you know having that

spend on the customer acquisition cost at scale will be will be a hard thing to do it'll be hard for remotely it'll be even harder for other people but that leads right into you know the ability create more room in the and for increased marketing investment which only leads to more scale I think that's I think that's the treadmill this company is on it's self-reinforcing I think it's It's already here, so it's already happening. So again, that gets back to my comment. I think it's really there as to lose at this point. Someone could make their stock go down with the wrong announcement or something like that.

But doing real damage to these guys, it's got to be freaking hard, very hard. My last question, and then I really got to go grab dinner for my wife. I do have to ask because it's stable coins. Why isn't stable coins a giant risk? I think both you and the CEO, the CEO also, he mentioned flywheel here, but both you and the CEO mentioned stable coins as more opportunity to risk than them. Can you tell me why? Because that is one thing.

I kind of thought, oh, if you can just like, if I could say, hey, send this stable coin tomorrow, maybe that's a risk if we're going to a cashless society. Yeah. So I think we addressed cryptos before. So now we're talking about stable coin. I think it's an accelerant to the business. Stable coin, to me, offers the potential that, that what's so wonderful about the Western Union business, which is cash comes walking up to you.

You have zero funding costs. It doesn't cost anything to take in that cash other than kind of paying the teller, right? And then you could have it appear somewhere else. I think stable coin at scale with trusted providers of stable coin, and do any exist kind of right now, like at scale that are trustworthy? No, probably not. But it essentially offers to replicate the attractiveness of the cash market, the cash. in the traditional market so essentially could really alter the better the the funding to make funding costs kind of go away there are trends um and that's a you know that's a little bit

i've cooked that up in my head if someone's got if someone wants to kind of challenge that and tell me you know i i'd love to hear it but there you know there are big trends that this company is riding and that is the trend towards more and more more individuals being banked i understand in the Philippines that that it was a huge shift away from cash with the past couple years to being banked so stored value cards and banks that's more and more people are getting banked there's more higher population more than are getting banked you know and that so that's that's a great trend to ride and then the cashless payments are are going down that is a shrinking portion of it so that both of those things kind of create a bigger tam for remitly and help squeeze down its cost

because the cost of sending ditch a stored value or a bank account is less than cash. So those are two like wonderful trends on a growing population and growing remittance. You know, remittance tends to grow pretty much each and every year that are just like winds in their in their sales, like a tailwind on their jet plane. I actually have a lot more question, but Mario, I got a hopper getting lit. This has been so fantastic. Mario, always one of the most prepared guests who comes on. I think one of the people's favorite guests. You are, I mean, it's early on Zonometry, but so far you're three-for-three on just hitting

it out of the park with pitches. So hopefully this makes four-for-four-four, but this is been great. Thank you so much, and looking forward to having you on for the fifth time. Yeah, awesome. Thanks so much. I always enjoy our discussion, so it's good. A quick disclaimer, nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks,

mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.