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Will MoneyGram's (MGI) International Digital Expansion Help?

Tanuka De

MoneyGram International Inc. MGI recently introduced its digital capabilities in Chile and Canada.

These two regions offer attractive business growth opportunities due to their huge immigrant population, driving demand for money remittance services. In Canada, immigrants can now use the newly-launched services, MoneyGram online and mobile capabilities, to send funds to their families back home. Funds can be moved quickly to any Canada Post location.

Demand for remittance in Chile has risen nearly 250% since 2010. To capture a pie of this growing market share, MoneyGram has launched mobile staging capabilities that will enable its customers and agents to process transactions quickly at point of sale.

The company is focused on digital expansion. The remittance industry is witnessing rapid change with the proliferation of technology. Several fintech players are also offering such services at affordable rates, thus intensifying competition for MoneyGram. Its peer Western Union Co. WU faces the same ordeal. It has been developing its digital money transfer service moving away from its earlier concentration in  physical transfer via its numerous outlets across the globe.

Despite the fact that the company’s online transactions outside the United States grew over 100% year over year in the first quarter of 2019, the pressure on the top line persists.

MoneyGram continues to be affected by increasing compliance controls, which impose limits on certain transactions. Also, the effect of tighter restrictions in corridors such as Nigeria and the United States has brought the company’s revenues under pressure. 

The U.S.-to-U.S. market is a persistent challenge with increasingly aggressive market pricing and a host of new competitors. Consequently, revenues have been declining over the past two years including the first quarter of 2019. The growth climate does not look promising this year as well. The company expects full-year 2019 revenues to decline approximately 2% to 4%.

Apart from weak revenues, MoneyGram also faces high compliance costs. From 2014 to 2017, the company incurred nearly $39 million (on average) in costs for its compliance enhancement program. In 2018, the company incurred further $12.9 million, up 34% year over year.

High compliance requirements resulted in loss of agents and customers in some of its corridors, thus eroding business. Plus, these expenses weigh on the company’s margins. It issued a grim view of its margins with 2019 adjusted EBITDA expected to decline approximately 8% to 12%.

Shares of the company have shed 75% in a year’s time compared with its industry's decline of 8%.

 

Though MoneyGram is developing and expanding its digital platform to stay ahead in the rapidly changing money transfer industry, it will incur substantial costs. In contrast, newer fintech players with cutting edge technology are expected to have a competitive edge over MoneyGram.

It’s likely to be a difficult ride for MoneyGram ahead. The stock has a Zacks Rank #4 (Sell). Earnings estimates for 2019 have declined 39% in past 30 days. The same for 2020 has declined 22%.  

Some better-ranked stocks in the same space are PayPal Holdings, Inc. PYPL and Square Inc. SQ. Both the stocks carry a Zacks Rank #2 (Buy). PayPal and Square have surpassed earnings estimates in each of the four reported quarters by 7.6% and 20.4%, respectively.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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PayPal Holdings, Inc. (PYPL) : Free Stock Analysis Report
 
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