Introducing Expensify (EXFY)

Expensify we.are.expensify.com/how-we-got-here is a newly listed company that IPOed just a few days ago on Nasdaq under the ticker EXFY with a market cap of around $4 billion and a share price of around $40 as of today.

What they do

Expensify is a user-friendly app that allows employees to track their receipts and invoices while they are away from the office. Here is the demo: youtube.com/watch?v=n5w9GtbeCjo

App store (4.7/5): [apps.apple.com/us/app/expensify-receipts-expenses/id47171395...](http://apps.apple.com/us/app/expensify-receipts-expenses/id471713959)   
Google play (4.4/5): [play.google.com/store/apps/details?id=org.me.mobiexpensifyg&...](http://play.google.com/store/apps/details?id=org.me.mobiexpensifyg&hl=en&gl=US) 

The story behind Expensify

In the words of the CEO as found in the S-1 sec.gov/Archives/edgar/data/1476840/000162828021020115/expen… :

Expensify is how we help.

I’ve been through the startup grinder a few times, and the last time left me a modest chunk of change in my pocket, while I was living in the Tenderloin in San Francisco. And while it can be paralyzing to think about these huge, systemic problems, I wanted to do something for the homeless neighbors I saw on my street every day as I walked to my comfortable job.

So I set out to build a private label electronic food stamp card I could hand out to anyone in need, that could be used once a day, up to $10 per day, only at restaurants that didn’t serve alcohol—with every purchase billed back to me. I reasoned that while I couldn’t solve hunger globally, it was within my power to do it on my street (but only if it was easy enough to manage; I had a day job, after all).

The technology, as is usually the case, was the easy part: I built a decentralized ACID-safe, Paxos-based, WAN-clustered self-healing database using blockchain synchronization (a year before Satoshi published his first paper on Bitcoin), and prepared to drop it on to Visa’s ISO 8583 private internet to print a stack of instant-issue cards I’d keep in my back pocket to hand out as needed. The hard part, as is usually the case, was getting permission from the many gatekeepers involved.

When I took this idea to the banks, they were like… what? Where is the business model? What about PCI compliance, money transfer licensing, KYC, AML, and a list of TLAs as long as my arm. They were very clear: this is too weird, and too risky, I’m out.

This led me to think, “Hm… I need to sound safe, and boring. What is the most boring application of these cards I can imagine… Aha!”

A corporate card, as a Trojan horse for charity.

I went back to those banks and said “Forget all that. Instead, I’m going to make a corporate card that small business owners can give to their employees, that enforces expense policy such as spend amounts and merchant authorization, at the point of purchase, but then bills every purchase back to the owner, so they keep the rewards. I call it: The Expensify Card.”

Revenue in $millions for the last 10 Qs


18  19.7  20.5  22  21.8  18.7  21.6  25.7  29.7  35.3

[covid Q is pretty obvious when the revenue dropped but the next Q went back to normal]

Dollars added each Q in millions


1.7  1.8  1.5  -0.2  -2.9  2.9  4.1  4  5.6

[it’s moving towards the right direction even if it comes from a small base]

QoQ growth


9.4%  4%  7.3%  -0.1%  -14.4%  15.5%  18.9%  15.5%  18.8%

[it seems that they accelerated since covid. can this be sustained?]

YoY growth


21%  -6%  5%  17%  36%  88%

[the 88% is due to an easy covid Q. if we compare it to the relevant 2019 Q then it drops to 79%. if compared to the Q right before covid hit it drops to 60%. not bad.]

Gross profit margin


59%  61%  61%  61%  64%  60%  61%  67%  74%  78%

[great improvement here. if they can push it over 80% it would be perfect]

Net income (loss) in thousands

(8,400) (290) 3,874 6,059 3,286 200 (6,938) 1,742 8,043 6,631
[it’s nice that they are already profitable]

Net Seat Retention

119%

Paid members


406 447 486 535 577 623 662 714 742 630 633 645 631 639

[it seems that the number of members is not growing as fast as the revenue which makes me wonder, how do they get the extra revenue? existing members take on more products and increase their spend significantly?]

Concluding thoughts

The valuation might be a bit rich unless they can sustain the acceleration. I like their story and the language they use. It seems that employees are super happy to work there based on the reviews on Glassdoor (4.9/5) glassdoor.com/Overview/Working-at-Expensify-com-EI_IE254791… .

However, it seems that the CEO tried to push his political views via email to their clients which led to furious clients and many negative reviews on Trustpilot trustpilot.com/review/www.expensify.com .

Also, it seems that they increased their prices (hence the added revenues maybe) without giving the option to clients to stop their subscriptions or keep their existing ones and only offer the new pricing to new members only (something that Semrush did and seems that it worked fine).

All in all, I liked the improving margins. Revenue is ticking upwards. The app has some very good reviews both on the App Store and Google Play (links above). And since a lot of people are not returning to the office, this might be a sustained play moving forward and not something temporary. Would love to hear your thoughts.

Thanks,
Pavlos

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Would love to hear your thoughts.

Pavlos, thank you for a good write up and highlighting the company.

While the numbers look good, I can’t get too excited about this one for 2 reasons:

  • I’m not sure how big of a problem they are solving–even the origin story doesn’t start with “companies were dying to find a better way…” Therefore, I’m not sure how big the TAM is for this type of card–it doesn’t feel like there is a huge runway here.

  • There doesn’t seem to be a significant technological moat. Why couldn’t Visa or Mastercard apply similar limitations to existing company credit cards?

Disclaimer: I could be wrong.

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While I haven’t researched Expensify as an investment, I have many years experience with them as a customer. A couple years ago, I would have been very interested in them as an investment, but after the past couple of years, I wouldn’t touch it

Background

I work in finance. More than 10 years ago, one of my staff discovered expensify online and suggested it to replace our current system for employee reimbursable T&E expense reporting and reimbursements, as well as a better way to manage our corporate credit card bills (not to use the expensify brand credit card, but to use it to manage costs and billings for our company’s non-expensify corporate card program).

We switched to expensify and everyone LOVED it! I’ve never in my carrer seen so many non-accounting, operational employees throughout the company rave about a finance system. It really was awesome, the technology made things so simple for staff.

6 years ago, I moved to another company and one of the first things I did was switch them over to expensify. Everyone loved it again.

But then in 2020, everything went south and I’ve already recommended to some friends that were considering switching their company onto expensify NOT to do it. I would never sign up another company that I work for in the future with expensify again. I only discovered this week that they were IPO’ing, and my first thought was “that explains a lot!” about where their priorities have been recently and why we’ve had many of the issues we have over the past two years.

2020 Pandemic

During the early days of the pandemic, our company reached out to every vendor we work with to ask for a temporary price reduction to help us navigate through tough times. Literally every vendor agreed to provide, in many cases, very generous discounts…except one. Guess who. Not only that, but expensify said oh by the way, we are also doubling our prices right now. The per user price doubled right when we were looking for some kind of discount. They provided an option to keep the price lower if you switch to using their corporate card, but the discount received for using expenisfy’s new corporate card was tiny compared to the rebate that any normal business would get from using a traditional coporate credit card program through a bank.

This was the blog post from their CEO at the time

https://community.expensify.com/discussion/6829/fast-concier…

He basically said, oops we spent way too much money investing in upgrades to our customer service and now with the pandemic, we are struggling financially and have to increase costs (or get you to switch to our corporate cards which are very profitable for us). And to top it all off, the “upgrades” they apparently invested a fortune in, were not needed, their customer service had been pretty good previously and actually got much much worse when they “upgraded” it. It consisted of mostly auto replies and offshore employees responding from a script.

They claimed they emailed it to customers, but nobody are our company had ever seen this blog until after we got our next bill and said “why is the price higher”. Here’s an example of some of the backlash on their own community page at the time:

https://community.expensify.com/discussion/6943/expensify-co…

Follow Up

For a couple months, I emailed every contact I had at the company, people that helped us sign up, others at expensify that had been day to day service people previously, and I didn’t get a single reply from any of them, even after following up with each of them multiple times. They clearly got some kind of marching orders that said that all of our customers are mad so ignore them and they will have to go via the automated/offshore customer service system which refuses to ever put them in touch with a real person that has any ability to help.

Basically we were in a bind, it wasn’t worth making a change right away, but as soon as our annual subscription renewed, we reduced the number of users dramatically. Basically we only kept our power-users with expensify that use it every month and for lots of expenses. We used to have users that only had one or two expneses per month, usually the same things for cell phone reimbursement etc, that we were happy to pay $8 per month for, but now that they doubled the price, in the middle of a pandemic, while their customer service got MUCH worse, it was an easy decision to switch those people off expensify and we’ll definitely never switch them back on again.

Financially

So keep in mind if you are looking at revenue growth in any of their filings, they literally doubled the price last year, and that is not sustainable. And they made lots of longtime customers like my company really unhappy which is probably leading to more customer like us switching away or decreasing users. They’ve proven themselves to be a really customer un-friendly company, now I know why they were probably so rigid, because they wanted to go public and couldn’t sacrifice pricing or revenue. This was probably a short term benefit making their recent financial history for the IPO look better, but it will certainly hurt the company’s long term future success, at least in my opinion.

They also have been doing more and more sketchy things. For example when the roll out a new product, they don’t reach out to the finance leaders, or whoever signed the customer company up for Expensify to see if we want to also use these new products/services from them. They actually send automated emails to every user (e.g. every random staff in the non-finance divisions such as marketing or reception, etc that use expensify for T&E reports) and tell them in the email something like Good News! You can now use expensify to pay your regular vendor invoices, just upload them here etc. Meanwhile a company like ours has lots of policies and procedures in place, internal controls, etc, we would never authorize the use of expensify to pay a vendor invoice for rent or utilities or anything like that, so it’s crazy that they would just start emailing every staffmember that uses expensify for expense reports and essentially tell them our company allows the use of their website for other invoices. When I first saw these, I emailed the customer service (the offshore one, it was the only one that responded) and said, “why are you telling our staff to use expensify for vendor invoice payment, we never discussed or agreeed to this?”. And the reply was something along the lines of “Why wouldn’t you want them to use us? It’s great”. Just crazy crazy that they thought that a corporate customer would be open to tactics like this.

Anyway, that’s my opinion. I would never go near this company as an investment. I’d actually consider some kind of short position. My current company is also the last time I’ll ever be a customer of theirs (we are have been reducing our user count and costs that they charge too)

-mekong

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I want to concur with mekong (but hopefully this is enough original content to not count as a “me too” post).

I wasn’t in finance, like mekong, but was instead a “road warrior” in sales that was a heavy Expensify user. I used Expensify at multiple companies. And it was night and day compared to the competition. I remember my first sales job. Expense reporting was actually a significant portion of your work week: you ended up with a folder full of receipts that you literally had to tape onto pieces of paper. The UI in the expense reporting applications was insanely horrible, most everyone ended up creating spreadsheets trying to track what you had submitted, what had been approved, and what had been reimbursed. Reporting expenses may sound simple, but I’ve easily spent half an hour on a single hotel receipt breaking it down between various categories (taxes, lodging, food), with various rates, dates, etc. Once you start getting into international travel, with multiple currencies, and receipts whose language you can’t read, it gets even crazier. Cabbies who give you a blank receipt to fill in yourself are a nightmare for accountants, but also for employees trying to report correctly.

One important side point I want to make here is that for most “road warriors” there is an implicit (and very unspoken) deal here. That I promise to travel on my own time (nights and weekends), be apart from my family, deal with the many inconveniences and unreimbursed costs of travel, and “suck up” getting screwed on the occasional lost receipt and tip, in exchange for the rewards points from hotels/airlines and the credit card points. Not everyone honors this deal, some companies force you to use their cards so that they can collect the credit card points themselves, but that is rarely popular.

Expensify was the first “mobile first” expense reporting application. And it was genius. Having a mobile camera means that you don’t have to worry about mailing receipts anymore. And it means you can “capture as you go”. And they had people on their side that would look at those scanned receipts and automatically categorize them. Expensify implied that this was done via AI, and I’m sure it was AI-assisted, but given all of the complexity I explained above, I am certain that it took a lot of manpower on their side. And, as mekong, implies it was popular in finance too because it streamlined their side. And also, I’m sure meant that they had a lot more accurate and timely data. I had one colleague that essentially took off a week every six months to do expense reporting. Needless to say, he was not popular with accounting.

But then I got the same email that mekong referenced in his post. Expensify basically wrote to me, as an end user, and said “Our business model doesn’t work: it’s too expensive to support you. So we are going to have a big price increase. Except for those customers that start using our card; because taking a cut of every transaction fixes our business model problem. So encourage your finance team to use our card.”

That just seemed unholy to me.

  1. It violates the unspoken agreement. I’m not giving up my points on my card. And I should be the last person Expensify is making this appeal towards. If I wanted to get a corporate card there were already solutions that leveraged credit card data.
  2. If my company is going to go with a third part charge card, I expect that they are going to want that transaction revenue themselves. They aren’t just going to give you those fees to make your business model less broken.
  3. You don’t go to end users and tell them to try and influence decisions from finance. They just (as mekong pointed out) made bitter enemies out of their target customers.

Even worse, Expensify once they had broken this seal, seemed to do it repeatedly. I do not want to hear about Expensify. If you want to email me, it should be about what you can do for me, not about what I can do for you.

Expensify was still probably the best, but it certainly wasn’t the only mobile first expense platform anymore. My finance department is going to do what is best for them, and I am not getting a vote. If you need to charge a higher rate because of the labor associated with processing my receipts, that’s fine. But don’t come whining to me, and don’t propose the only possible solution is to make my side of the deal worse.

But there’s one other reason that I wouldn’t touch Expensify with a ten foot pole. The pandemic has changed the world. There will be very few “road warriors” going forward. I have made zero in person sales calls in the last eighteen months. And while I’m sure that someday I will make in person calls again, the days of me being on the road 50% of the time are long gone.

  • There are just are too many customers that telework. Why should I fly across the country when 50% of the customer’s team will be virtual anyway.
  • The hard dollar costs. Travel has always been expensive. But the alternatives have improved. People are used to having meetings via Zoom now anyway. Companies have been trying to make teleconferencing a thing for decades; but the pandemic made it the default choice.
  • The opportunity costs. There are still sales managers who strongly believe in meeting in person and believe that meeting in person is more effective. And they are right. But to have a 1-2 hour meeting in person costs two days if you count travel time. Given a choice between 2 in-person sales calls and 20 Zoom calls, most people will take 20 Zoom calls.

There will definitely be exceptions. Business travel will still be a thing. But I feel like that it is going to be the exception, rather than the rule. And that breaks Expensify’s business model. (Again.) Because if they are going to make their profit from credit card transaction fees, then the fact that I travel 10% as much will hit them directly in revenue.

In short, if there is one thing I’ve learned from Lightspeed is that “Saul stocks” should never invest against headwinds. Even if there are some short-term numbers that make it look appealing, “Saul stocks” need to have the wind at their backs.

–CH

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