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Remitly Global (NASDAQ:RELY) shares fell more than 8% on Wednesday as Andrew Bauch at Wells Fargo initiated coverage on the stock with Underweight rating and $16 price target.
Bausch’s rating hinges on the challenges the financial services company faces to sustain growth and margin expansion simultaneously. This is underscored by the company’s decision to increase marketing investments which points to the dwindling opportunities from the “low-hanging fruit” in the digital remittance space.
“We believe the Street may be overestimating growth within the new account/volume pipeline,” Bausch said, “and underestimating a higher level of marketing investment” to maintain the current level of growth.
Remitly (RELY) is better positioned than others when it comes to fraud and has experienced a sharp reversal in fraud-related losses in 2023, Bausch said. However, there is unpredictability from quarter to quarter and the company’s fraud projection provides a “mathematically unsustainable tailwind to net take rates and gross margin.”
If fraud losses exhibited typical patterns in 2023, Remitly’s (RELY) gross profit growth would be 3% lower than Street expectations, Bausch said.