We initiated a research report on Xoom Corporation XOOM on Jun 23, 2015.
Xoom is one of the leading digital consumer-to-consumer international money transfer service providers. The company provides its customers with convenient, fast and cost-effective money transfer and bill-payment solutions. This, in turn, helps it to retain active customers as well as gain new ones, thereby resulting in significant rise in gross sending volume (GSV).
Xoom remains technologically sound when it comes to providing enhanced services to its customers. The company launched its mobile strategy in Nov 2011 and introduced the mobile application “Xoom App” in mid-2013 to capitalize on the increasing trend among customers of using mobile phones for making and transferring payments.
The company’s service enhancements have allowed it to reach 1.3 million active customers at the end of the first quarter of 2015. This impressive improvement can be primarily attributed to the ease of mobile money transfers. Mobile devices made up for 60% of the transactions in the first quarter of 2015. Increased mobile usage is expected to continue and given Xoom’s focus on upgrading itself technologically should make way for more volumes going ahead. Moreover, Xoom’s business strategy execution and marketing efforts have helped it increase its gross additional customers.
Also, Xoom’s incessant efforts to enhance customer experience allow it to reach new markets and strengthen operations in existing ones. The company expanded into China and Pakistan in the last reported quarter.
However, we remain concerned with the company’s burgeoning expenses and significant operating losses. Increased competition and gradual decline in the year-over-year percentage growth of additional customers are likely to weigh on the percentage growth of revenues in the future. Xoom expects costs to increase on account of expenditures in business development and marketing, technology infrastructure, and general and administrative expenses.
Additionally, Xoom faces significant headwinds from foreign currency fluctuation, which weighs on its top line. Also, litigation issues faced by the company are likely to tarnish its goodwill and mar investor confidence, along with draining cash and weighing on its financial position.
Earlier, the company had reported first-quarter loss that was narrower than the Zacks Consensus Estimate but compared unfavorably with the year-ago earnings.
Xoom currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the financial transaction space include Global Payments Inc. GPN, Green Dot Corporation GDOT and Total System Services, Inc. TSS. All these stocks hold a Zacks Rank #2 (Buy).
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