Xoom in online
Compared to Western Union John Kunze the CEO believes Xoom can provide the same service today online in less than a minute at 2/3 less cost. Western Union is the big gorilla of the business with 500,000 branches and commissions that have to be paid to agents. Western Union and Money Gram have 20% market share of the remittance market. However their cost structure makes it unlikely that they can ever compete with Xooms pricing. Xoom customers tend to pay a flat fee and a 1-3% mark up on the FX, for Xoom the average revenue per transaction is $12. 90% of their payments are repeat customers who tend to send money abroad in line with receiving their paycheck.
Xoom is also trying to solve the problem of bill payments. In some of these countries payers have to go to a physical location, line up and pay. Xoom have noticed that 30% of money sent through their service is for bills. With the recent acquisition of BlueKite Xoom is building the capability to make payments direct to utilities and other bill payment services on behalf of someone else. Xoom believes that this will make their service even stickier as once you have set up all your payment details for your family overseas it will be unlikely that you will leave the Xoom service.
Smartphones opening up new markets
The smartphone has been great for Xoom's business especially in Latin America as most users do not have access to a desktop. In 2013 42% of transactions were conducted on a mobile device. In Latin America mobile usage is above 50% while India is much lower apparently the majority are IT professionals that are always near a desktop. Xoom's mobile app has incorporated a '2 click quick send' feature which allows users to send money in around a minute 80% of Xoom's transactions are quick send. Competitor app downloads have been negligible with Western Union's online business only 5% of revenues.
Paypal mafia
The Paypal mafia ie the founding members of the Paypal team have created some of the world's most valuable and innovative companies. You probably recognise Elon Musk who co-founded Tesla and Solarcity, Reid Hoffman with Linkedin, Peter Thiel the first investor in Facebook, Max Levchin with Yelp and Steve Chen a co-founder of Youtube etc. Hopefully the picture below conveys how successful as a group they have been.
This leads me to Xoom which has one of the most heavy hitting boards of any small cap stock that I follow. Roelof Botha ex Paypal CFO is the chairman. Kevin Hartz one of the first investors in Paypal and founder of Eventbrite is a director and founder of Xoom, Keith Raboi is a former COO of Square and Matthew Roberts CEO of Open Table. This is a very well connected company. Even Paypal has tried to partner with Xoom but Xoom believes that they can do a better job themselves as Paypal is focused more on merchants rather than solving problems around the remittance market.
According to the World Bank the international remittance market is huge at $549 billion and growing around 8% per year. Xoom's immediate target opportunity is $82 billion so it has around 7% share of the current markets it is in. Given the large opportunity, a mobile friendly product and an ex-Paypal management team the future for Xoom looks bright.
Jason
Disclosure: Decisive owns a position in Xoom (XOOM) stock
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