Read Market Watch today on Xoom, as well as this week’s WSJ that projected price related to $468M market cap. I must say I feel rather ignorant, after looking through Xoom’s S1 I can’t see how a company with no EBIT, 70m in Revenue, operating on 5% of MGI’s transaction volume can have a value of 50%+ of MGI’s market cap.
My biggest worry as a prospective investor would be competition. My data indicate that Xoom is operating on a banked-banked model. Within their S1
Our customers represent a broad range of professions and education levels, but share common traits in that they have bank accounts and actively use the Internet or mobile devices
Offering $5 cross border transfers. If this is indeed a large portion of their business, Banks have complete pricing power to wipe them out anytime they want. Additionally bank are central to providing the KYC services that allow Xoom to comply with US MSB regs.
To minimize payment and fraud risk, several requirements must be satisfied in order for a prospective customer to use our services. A prospective customer must provide us with the following information: name, address, e-mail address, phone number, date of birth, U.S.-based payment source, name of recipient, recipient disbursement information and recipient address. The U.S.-based payment source may be a bank account, credit card or debit card, but we do not require that it be from any particular bank or banks.
I would not be surprised to see US banks increase the cost of account ownership verification for MSBs. In the US, Consumer banks initiating a transfer to Xoom operate as ODFIs and hence retain responsibility for disbursement of customer funds in ACH debit transfer.
My guess is that volume has been too small for the banks or regulators to bother with. Xoom is building its business on top of bank networks with no bank upside for participation. This is WU/MGI’s advantage of having cash in/out. They have their own separate clearing network.
Just my thoughts.