XOOM - Is it disrupting or fading away?

Hi all,

My friend Vish pointed me to a company called XOOM, which is in the money transfer business. He got the idea from a LinkedIn post by Jason Mosers (TMFJMo). Anyways, I though the company was interesting and I really liked their new Bill Payment initiative, so I some digging around using my usual method, i.e. summarising the most recent 10K I could find along with some of the recent earnings releases. See notes below.

FYI, Jason’s LinkedIn post is here:

Anyone looked at Xoom? Thoughts?


Xoom (NASDAQ: XOOM) offers fast and cost-effective consumer-to-consumer money transfer services. Currently, Xoom supports money transfer from the US to 31 countries, and it targets the immigrant population in the US, i.e., people who left their home country for the US in search of better opportunities and lifestyle as well as income that would support their families back home.

Xoom IPO’ed in Feb 2013 where about 7.3 million shares were sold to the public @ $16/share; this included about 1.1 million shares of selling stockholders. There was a follow-on offering in September 2013 where approximately an additional 5 million shares were sold to the public @ $30.5/share; this included about 1.4 million shares of selling stockholders.

How does Xoom approach fund transfers?

Origination & funding - Xoom does not operate any physical locations (unlike Western Union) and all transfers originate online either at the xoom.com website or via their mobile app. The customer initiating the money transfer can choose to fund the transfer from a US bank account, credit card, or a debit card. Over 90% of their GSV is funded by bank accounts through the Automated Clearing House (ACH) system. Xoom instantly processes 95% of ACH transactions for disbursement by recipient-side partners, which allows fast transfer of funds to receipts, while funds become available to Xoom within 1-2 business days since ACH transfer was initiated. This quick transfer of funds is one of Xoom’s USPs, but it does expose them to additional risks. Managing this risk is one of the key aspects of the Xoom business.

Disbursement - This can be via bank deposit, cash pickup at disbursement locations, and even home delivery of cash at certain countries. Xoom can either pre-fund or post-fund a disbursement. In the pre-fund mode, Xoom funds the disbursement partner’s bank account prior to the funds being delivered to the recipient.

Given there are risks in both the funding and disbursement processes, especially because Xoom initiates the transfer before receiving the funds in a majority of the cases and also does the same with disbursement, a competent system of risk management is required. Xoom’s transaction loss rates have been 35 basis points or lower as a percentage of GSV since 2010. Xoom claims that it’s proprietary risk management system is one of its key business strengths.

Xoom makes money by charging a transaction fee for the money transfers and from foreign exchange spreads when transfer is not in US dollars. Foreign exchange spreads typically range between 1 to 3% of the transfer amount.

What is the Xoom Opportunity?

  1. The US is top remittence sending country. Estimated outbound flow of monies in 2012 was about $120B, out of which about $80B was destined to countries served by Xoom. The traditional money transfer model (e.g., Western Union, Money Gram) is slow, inconvenient, and comes with high overheads of physical locations and transaction processing agents. Xoom’s digital transfer model offers a fast, convenient, and low overhead solution.

  2. The traditional money transfer model with extensive physical network of agents such as those of Western Union are expensive to maintain and have limitations such as requiring the sender to go to a branch/agent during business hours to initiate the transfer. Xoom’s business model is light on infrastructure, fast, and efficient. Xoom’s proprietary risk management system is one of the key tools for it to enable fast money transfer. They claim that their risk management system enable Xoom to manage payment & fraud risk, anti-money laundering and regulatory compliance.

  3. Xoom has recently expanded its services to include Bill Payment and cell phone top-up services. This service is now available in some Latin American countries, but this seems like a great addition to the basic money transfer facility offered by Xoom. In fact, I would argue that this is an even bigger value proposition as many immigrants wish there was a simple and easy method to make payments for their loved ones back in their country of origin but are instead left to grapple with crummy payment services, which often don’t accept foreign currency payments. Further, the ability to consolidate several bills into one interface for the sake of management and payment is a great service. I believe this sort of service will increase customer loyalty at Xoom.

  4. Xoom launched money transfer services to China in early 2015.

Has Xoom Xoom’ed?

Let’s start by looking at some of the company’s key operating metrics:

  1. Gross sending volume (GSV) is the total amount of funds transferred, excluding fees. These grew at a rapid clip until 2013, but have seen a slowdown in 2014.

Year     GSV ($M)   YoY%
2009     $500M          -
2010     $859M       71.8%
2011    $1707M      98.7%
2012    $3248M      90.3%
2013    $5544M      70.7%
2014    $6859M      23.7%

Is there a legitimate reason to be worried? The GSV growth rate was hovering in the 70+% range, but it has suddenly come down to 24% year-over-year increase. Why?

  1. The number of active customers measures the customers who have at least made one transfer in a given 12-month period; similarly, new customers added reflect new customers added who have at least made one transaction in the 12-month period considered. Xoom now has over 1 Million active customers and it seems to find about 400 thousand new customers each year.

#’s below in thousands.

Year          #active          #new
2009          301.8          205.3
2010          392.7          225.9
2011          516.6          291.5
2012          776.4          405.3
2013         1059.7         481.1
2014         1278.6         465.3

The above numbers seem to suggest that the company is looking at adding about 450,000 odd new customers each year. That’s not bad, given they have about 1.3M active customers.

  1. The company also reports Adjusted EBITDA and Non-GAAP Net Income; the company became profitable on a non-GAAP basis in 2013. The company went from negative EBITDA to positive in 2013. EBITDA grew about 43% b/w 2013 and 2014.

Let’s look at Adjusted EBITDA for last 3 years. This measure removes the impact of stock-based compensation, taxes, amortisation & depreciation, interest income & expenses, and any one time loss event (this one can be a problem if the loss events are recurring).

EBITDA for 2014, 2013, and 2012 were $20.1M, $14.4M, and $(0.5)M, respectively. Note that 2014 adds back $30.8M for a one-time loss related to “business email compromise”. This needs to be investigated further.

Non-GAAP Net Income adds back stock-based compensation, amortisation of acquired intangible assets, and one-time loss events. Non-GAAP income was $14.7M, $10.4M, and $(3.5)M, in 2014, 2013, and 2012, respectively. Note that for 2012 no compensation is made for acquired intangible assets as I didn’t look hard enough to find the value.

  1. Xoom sports strong revenue growth and high gross margins.

Xoom generates revenue from transaction fees charged to customers, and foreign exchange spreads on transactions where the payout currency is other than U.S. dollars. Xoom recognises revenue when they accept the transaction for processing, net of cancellations and refunds.

Xoom reports cost of revenue, which includes fees to disbursement partners for paying funds to the recipient, fees to payment processors for funding transactions, a provision for transaction losses. Note that promotional expenses to acquire new customers are not reported under Cost of Revenue and are instead reported separately under "Marketing Expenses”.

Year          Revenue          CoR          Marketing  
2012          $80M               $26.8M     $21.5M     
2013         $122M              $38.1M     $25.9M
2014         $159M              $38.1M     $32.7M

Gross margins have been going up from around 50% in 2009 to 76% in 2014. That’s showing that the business is scaling nicely. Marketing spend as a percentage of revenue is trending down from 25% in 2012 to around 20% in 2014.

Financials & Valuation

o Cash, cash equivalents, disbursement pre-funding, and short-term investments as of Dec 31, 2014: $250M. Company has no long-term debt.

o Weighted average diluted shares for year ending 2014: 38,195,000

o FY 14 Revenue: $159.1M

o FY 14 Non-GAAP EPS: $0.35

o Share price as of 22 Feb 2015: $16.43 (close to the IPO offer price)

o PE (non-GAAP): 46.9

o PS: 3.9

Xoom’s FY 2015 guidance is for revenues around $190M and non-GAAP EPS around $0.35 at the mid-point. I.e., the company is guiding for revenue growth of around 19.5% and zero earnings growth. Given the outlook, it’s no surprise that Xoom’s share price has come down sharply. It’s 52-week high has been around $30, so it’s down 50% with respect to the 52-week high.

Concluding Thoughts

The story looks exciting but I ‘m concerned by the slowdown in growth. Management is guiding for a flat 2015. I have a hypothesis - the initial years of Xoom and during its pre-public life the company was doing well because the big giants like Western Union and company hadn’t really taken to digital money transfers. I ‘m guessing the giants are now more and more focusing on digital transfers and are starting to eat Xoom’s lunch. This is my hunch but given the slowdown in growth and the high earnings multiple even after a 50% drop in share price, I don’t think this is a good investment. I ‘m happy to discuss this further with anyone who’s some idea as to what’s the reason for the slowdown in revenue growth in 2014 and 2015. But, for now, I ‘m not going to really put more effort into uncovering the reasons …


Hi Anirban,

Thanks for the nice write-up on XOOM.



Nice analysis. A couple things popped out in your post. The growth in users slowed, but if you also look, the marketing spend went down when the gross margins increased from 50% to 76%. This could very well be the reason for the slowing down of growth of users.

The second thing when you say WU may be eating their lunch, the comparison that come to mind is Netflix and Blockbuster or Amazon and brick and mortar retailers or BOFI and other brick and mortar banks.

Even if these guys start to eat their lunch, efficiencies will let XOOM do very well over the long term due to the capital light nature of the business.

The user growth slowing down is definitely something to watch out for but I think the market is pretty big for more than one player to execute successfully in this space and I believe as more people immigrate, the market will also keep growing.

I have taken a small stake, so I can participate in any upside and don’t mind losing it, if XOOM craters.

We might see this as a future RB rec at some point. Just my thought.


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I have been using Xoom money transfer service to India for the past 3 years and wanted to say that hands down, they are the best in the business.

Agree with Vish, in that, I think Xoom is actually eating WU’s lunch and they are the real disruptors in this business and if they execute right they could be the NetFlix of the money transfer business.

I took a small position after MF Funds invested in Xoom last year, though I’m down around 20%, not planning to sell it anytime soon.



Don’t own any Xoom, haven’t looked into it, but WU money transfer service is very expensive, so to seems a business ripe for competition.,

Hi Daya,

Thanks for chiming in with your experience.

Have you heard of Ria Money Transfer? How does that compare with Xoom? Ria is owned by Euronet Worldwide (EEFT). Euronet has been killing it of late. I briefly reviewed their most recent earnings release and looks like they are doing well. Adjusted EPS was up 27% YoY and its trading at around 20x trailing earnings. The company is around $3B market cap and it provides exposure to several emerging markets (Eastern Europe, Asia etc).



Following your post, I did some digging during my morning commute.

It appears the big jump in customers and revenues come when Xoom ramps up a new market. Without a new market, I guess once the initial market share has been grabbed, one’s looking at a modest 15% or so revenue growth.

With respect to competition, it appears the main one’s are Western Union, Money Gram, and Ria. For Ria, see my response to Daya’s post. I agree Western Union & Money Gram are old school so even when they bring more online transfers they suffer from the overall high fixed cost of the business. So clearly, Xoom’s asset light business model is an advantage.

Xoom’s entering China this year and it expects to spend marketing dollars to bring the China up to speed in about 1-2 years. I am guessing there will be a good bump in revenues in 2016. This year is likely to be muted.

I haven’t checked insider ownership carefully. However, looks like the insiders have been steadily unloading shares.


I guess one concern with all of these intermediaries is whether a big brand could blow them all away. Whilst WU maybe the world’s biggest rip off, they and these small disruptors have always been living under the shadow of the volcano of PayPal taking this seriously and seizing the pie and now there is the potential I guess for Apple with Apple Pay or Ali Pay from Alibaba taking over.

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I’m not so much concerned about user growth as I would be about $'s sent growth. If the remittance amount grows at a decent pace, they will do well as their market is too big and they are a technology company that is disrupting the industry.


My wife is Chinese. Though she now lives in the US with me, we lived apart for 4 years. I transferred money to China (and she sent some back to the US) on several occasions. Here are my thoughts based on my experience and also from what I’ve read about international money transfers. I don’t know if my experience is typical or somewhat unique.

First thought is there’s about a million ways to send money across national borders. You may be familiar with hawala (if not, read the Wikipedia article). This system has been in operation for decades if not centuries. It is a system of trusted brokers and has a fraud rate approaching zero. Once trust is broken, you’re permanently out of business. I’m not sure if punishments are meted out as well, but it wouldn’t surprise me. I’ve never used it, but I’ve read it is very popular among African and Asian Muslim populations who don’t use traditional banking systems. After 9/11 the US government became concerned that this system was being used to fund terrorist organizations, but I believe operations continue unabated. In fact, I think it is almost immune to regulation because no money actually moves across borders.

I have personally used a number of different services, but most often used traditional bank wire transfers because they are safe, convenient and not very expensive. So, Xoom, Paypal, WU, and a host of others appeal most to people who do not use traditional banking. But from my own experience, I found it difficult to distinguish one service from another. In other words, this service is essentially a commodity, highly subject to price competition. People did not hesitate for a heartbeat to stop using WU and initiate transfers with a competitor. WU is both inconvenient and expensive. If Xoom has some sort of competitive moat, I can’t imagine what it might be. They may have some proprietary risk management techniques, but you won’t find an end customer who gives a damn. The only risk they care about is the one related to their particular transaction. So long as there is a comfort level that the money sent will actually arrive they could care less if the company loses money or not.

In short, my perception is that this is a highly competitive business, driven largely by end user pricing, with low entry barriers and limited opportunity to establish a moat.

I would not invest in any company that had international money transfer as the primary line of business. The one thing I see as a positive with Xoom is the expansion into other products (i.e. bill paying service), but that’s not enough to attract any of my investment dollars.


BrittleRock, Thanks for a great analysis from a different point of view!


Excellent post brittlerock.

I agree Xoom probably has little moat. Ria is offering though competition in some markets. The opportunity might be in tightening regulations, which force people to use legal money transfer modes. That plus the low cost setup are some of the advantages of Xoom.

Personally, I am not really inclined to invest. I study many stocks but I don’t invest in all of them.

Among the ones I studied in the past few months, I like XPO and AL. I also feel there are other opportunities such as PCLN, FB, CRTO, TRIP, and a few others that may be better use of investment dollars.



I’m long on all stocks you mentioned except AL and TRIP. I’ve not looked into TRIP so I’ve got no opinion other than it’s a crowded space already dominated by PCLN, EXPD and CTRP (Chinese).

I find AL very interesting for only one reason, Mr. Steven F. Udvar-Hazy. I worked at Boeing for 30 years. This guy virtually invented leasing commercial aircraft as a primary line of business. He was so influential that Boeing would consult with him prior to finalizing design of a new model. My recollection is that Airbus significantly altered the design of A350 in response to his input. He buys so many planes that both Boeing and Airbus give him first shot at line positions. You need to know something about the airplane business to understand how important that is, but often an airline might be faced with the option of wait two years or more for delivery from Boeing or Airbus or lease within a few months from Steven.

The advantage of leasing for a start-up airline (or even an established one) is very significant reduction in near-term capital requirements. The ability to take quick delivery with reduced funding requirements can be the difference between new revenue routes (or increased service on existing routes) versus letting the competition take market share. Airlines thrive on repeat business, share is vitally important.

AIG screwed him out of his business and I think he started AL at least in part as a vendetta against the AIG’s aircraft leasing operations (he started AL 4 years ago at age 66, he’s not in it strictly for the money).

Saul likes XPO for a number of reaaons, but the presence of Jacobs as CEO is primary among them. Same goes for Udvar-Hazy at AL. I’ve not put any money into this company yet, but that might change very soon.


He started AL 4 years ago at age 66, he’s not in it strictly for the money. Saul likes XPO for a number of reaaons, but the presence of Jacobs as CEO is primary among them. Same goes for Udvar-Hazy at AL.

BrittleRock, your thoughts on AL intrigue me. But Jacobs is 56. How do you deal with Udvar-Hazy being 70 years old??? He could go for 10 more years, but then he’d be 80! or he could retire at 72, easily. (I know that I didn’t have anything like the energy I had had at 60 by the time I got to 70). Or he could die at 72! How much of your investment would be dependent on him? and how much would you think the company would be able to continue successfully without him?



Maurice Raymond “Hank” Greenberg is 89.


One of the problems defined benefit pension plans are having is that people are living longer than expected. The other day I saw a headline touting 100 as the retirement age. That said, relying on an irreplaceable person is always a bad idea. As Peter Lynch wrote,

Getting the story on a company is a lot easier if you understand the basic business. That’s why I’d rather invest in panty hose than in communications satellites, or in motel chains than in fiber optics. The simpler it is, the better I like it. When somebody says, “Any idiot could run this joint,” that’s a plus as far as I’m concerned, because sooner or later any idiot probably is going to be running it.


Lynch visited USA TODAY last week and talked about where amateur investors most often go wrong when they invest in individual stocks. … “Go for a business that any idiot can run – because sooner or later any idiot probably is going to be running it.”


Denny Schlesinger


Hi Anirban,

I had heard about Ria, but at that time they did not have money transfer services to India. Also, after using Xoom I was happy with the end-to-end experience that I did not bother to check back on Ria or other services. One of the feature I liked was the same day transfer to Indian bank accounts on a week day.

Taking a cursory glance on Ria’s website they now have services to India and also have same day delivery but not sure whether I would like to go through the setup process again to try them out.

Also, here is a FT article http://on.ft.com/1EIFW87 that tells us how large the worldwide remittance market is and online remittance is only 5% of this large opportunity.


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Yes, exactly Saul -
I said I might invest in AL, but haven’t done so yet. Your observation about Udvar-Hazy also bothers me.

And there’s another thing that has me in knots about AL, I’ve more than once conceded that financial analysis is not a long suit of mine, and I find the leasing business absolutely opaque. Somebody who’s familiar with this business can probably figure out if this is a good investment from a financial analysis perspective, but I can’t.

I mentioned I was in BOFI, and banking is another business that I don’t really get. Like leasing, I get the broad-brush idea, I just don’t know how to unravel the details of the financial statements. I’m in BOFI because other people who seem to get it think it’s a good investment. So far, I don’t have the same confidence in AL.

So two strikes and it’s almost out - Udvar-Hazy is kind of old (so am I, but I’m not trying to run a multi-billion dollar company, then again, Buffet is even older and still apparently going strong). And I can’t unravel the financial statements. I’ll probably pass, or I might nibble just to keep my eye on it.

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Udvar-Hazy is kind of old (so am I, but I’m not trying to run a multi-billion dollar company,

Me too, and I wouldn’t have the energy to do it now. Sure Buffet is old too but he has guys he’s trained for generations actually running the business. And he’s running a stable established business, not an upstart.


Actually, his age may work in his favor. The airplane business is like a special boys club (virtually no women in any executive suites though there are a few female board members. Wouldn’t surprise me if they had a secret handshake and all). It’s not quite the days of Tripp at Pan Am, Casey at TWA, Ferris at United, Parker/Crandall at AA and so forth. And of course the flamboyant Tex Johnson at Boeing who flew a 707 into a Barrel Roll over a Seattle Sea-Fair crowd in 1955. The club is bigger now. There are non-American brown people who are club members. But it’s still a tight-knit relatively small group. There are few enough members so that it’s possible to have a personal relationship with every potential customer.

Udvar-Hazy is sort of a patriarch of the club. And because he doesn’t run an airline company he does not directly compete with the other club members. And he’s not a US citizen by birth so he’s more easily accepted by the rapidly expanding foreign club membership. He is in a position of trust and high respect. AL with Udvar-Hazy at the helm is not really an upstart. I’m very confident that succession planning is a focus activity for Udvar-Hazy. Exactly when he’ll move on is anyone’s guess, but I’m sure he’s laying pipe now so that AL as his legacy outlives him.

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The airplane business is like a special boys club (virtually no women in any executive suites though there are a few female board members.

Look what happens when the daughter of the chairman gets into a Korean peanut tussle… LOL

Denny Schlesinger

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