Let's say you're thousands of miles from home, in a country
that doesn't speak your language and doesn't much care that you
blew all your cash and credit at the casino and can't pay your
In the old days, you might be stuck scrubbing the hotel's
bathrooms for a week or more until you could get money wired from
In 2013, you can get your cash in a matter of minutes, using
the services of firms that specialize in online, person-to-person
One of those outfits,Xoom (
), allows customers to make online money transfers from the U.S
to foreign countries. It was founded in 2001 and went public in
February, making it a mere pup compared to much larger, more
established rivals such asWestern Union (
) andMoneyGram International (
Still, Xoom has built a growing business providing
person-to-person online money transfer services through its own
xoom.com site as well as another website, walmart.xoom.com, that
was established through a 2011 partnership between Xoom and
discount retail giantWalmart (
Making Money On Money
Xoom charges fees to send money and also earns a foreign
exchange spread on the amount sent.
At midyear, the company boasted more than 915,000 active
customers and provided services in 30 countries on six
continents. Its sales through the first two quarters of 2013 were
up more than 50% from the prior year, and it is expected to post
its first annual profit this year.
Customers can make transfers using their bank accounts, credit
cards or debit cards. Unlike some rivals, Xoom doesn't let
customers transfer money between states or from foreign countries
to the U.S.
Though Xoom only allows transfers that start in the U.S., CEO
John Kunze told IBD in an interview earlier this year that there
is still plenty of business. (The company currently is in a quiet
period prior to its Q3 earnings announcement scheduled for the
week of Oct. 21-25.)
"The market we're operating in includes about an $82 billion
opportunity," Kunze said. "Last year, we processed $3.2 billion,
so we have only 4% market share -- and a long way to go to build
a very big company."
Much of Xoom's business comes from U.S. immigrants who want to
send money to family back home.
In a report, Raymond James analyst Wayne Johnson said that
more than 70% of Xoom's revenue comes from three countries: the
Philippines, which accounts for about 35%; India, at about 25%;
and Mexico, at about 14%.
One of Xoom's advantages over rivals is its "expedient
remittance times," Johnson said. Customers can send money
directly to a recipient's bank account within a few minutes of
the initial transaction.
Competition will likely increase in coming quarters as more
companies try to grab a piece of the market for online global
money transfers, analysts say.
Future Of Funding
In addition to legacy players such as Western Union and
MoneyGram, competition might come from banks, regional players
and payment companies such aseBay 's (
The fact that Xoom is already entrenched in the market should
give it a competitive boost, analysts say.
"While we see risk for increased competition, we believe Xoom
has established a strong brand in the online market, and the
barriers to entry are high," Mayank Tandon, analyst at Needham,
wrote in a note after Xoom's Q2 earnings report.
Legacy players face "many challenges" as they try to grow
their online business without disrupting their core cash-to-cash
offline businesses, Tandon added. He points out that Western
Union and MoneyGram get only 4% and 5% of their revenue,
respectively, from the online channel.
At the same time, both of those companies have a lot more
financial might behind them than Xoom. Western Union had nearly
$5.7 billion in revenue last year, while MoneyGram posted $1.3
In contrast, Xoom generated $80 million in 2012 revenue. As
recently as 2009 it had less than $30 million. But the company
has been growing rapidly, with 38%-or-better sales gains in each
of the last nine quarters.
Second-quarter revenue rose 59% from the prior year to $33.5
million, topping consensus views for $26.4 million.
"While all the key regions performed ahead of plan, the India
business, boosted by the almost 10% depreciation of the rupee vs.
the dollar, drove the majority of the upside," Tandon noted.
Second-quarter earnings came in at 14 cents a share. That was
well above views for a 7-cent loss as Xoom delivered much
Analysts expect Xoom to post losses during the third and
fourth quarters, though it should still log a full-year profit of
12 cents a share. Earnings are seen climbing to 17 cents a share
in 2014 and 35 cents in 2015.
Xoom's stock price debuted at $16 on Feb. 15. Shares peaked at
36.46 on July 29. They tailed off some after that, partly because
of market concerns over a secondary offering of 4.4 billion
shares in early September. The stock fell as low as 26.34 on Aug.
30, but has since rebounded and currently trades near 32.