On Dec 24, Zacks Investment Research downgraded Xoom Corp. (XOOM) by two notches to a Zacks Rank #4 (Sell) from a Zacks Rank #2 (Buy).
Why the Downgrade?
Despite upbeat earnings in third-quarter 2013, earnings estimates for Xoom have remained stationary on the back of stagnant growth momentum, higher expenses and faltering guidance for fourth-quarter 2013.
Additionally, this online money transfer service provider underperformed the year-to-date Nasdaq index, which posed a growth of 30.2% against Xoom’s 9.5%.
On Oct 22, Xoom reported third-quarter 2013 operating earnings per share of 6 cents, which rebounded significantly from a loss of 31 cents. Results also outpaced the Zacks Consensus Estimate of a loss of 9 cents.
The top line surged 62.3% over the prior-year quarter based on significant growth in transactions, gross sending volumes as well as active and new customers. However, operating expenses increased 29.5%, which along with higher interest and other expenses, restricted margin upside.
Xoom’s focus on international expansion and increased presence on mobile devices for digital remittances are yet to show results. This is due to the operating challenges faced due to intense competitive pressure in the peer group, which also hikes the risk for new-customer accretion.
Subsequently, the company is expected to deliver operating loss per share between 1 cent and 3 cents in the fourth quarter of 2013, while revenues are projected in the band of $30.2−$31.2 million, thereby raising caution for the upcoming quarters.
Meanwhile, the Zacks Consensus Estimate for 2013 and 2014 remained intact at 11 cents and 18 cents per share, respectively, in the last 60 days. No upward revision in estimates was witnessed for both the years.
Other Stocks to Consider
While we prefer to avoid Xoom for the time being, better-ranked stocks in the financial transactions sector include Heartland Payment System Inc. (HPY), Higher One Holdings Inc. (ONE) and MasterCard Inc. (MA). All these stocks carry a Zacks Rank #2 (Buy).