What do MoneyHero Group, Grab and Ohmyhome have in common?
- They are all companies with their HQs in Singapore and at present have the bulk of their operations here.
- All 3 stocks have crashed significantly from their highs (at the time of writing) and haven’t given investors at the world stage a very optimistic impression about such Singaporean-based businesses.
Of the 3 companies, MoneyHero Group is now the one in focus having listed recently on Friday the 13th (coincidence?).
Despite the resurgence of IPOs this quarter, their listing seems to be off to a rather ‘villainous’ start given that a third of their investors redeemed their shares before the merger.
In addition to this, the stock sold off by 50% on its opening day with little to no hope of a rebound! (Imagine flying your management team and investors over to America to ring the opening bell just to see your company stock sliced into half on its big night.)
Despite my initial disappointment in their debut, my analysis of the company reveals an encouraging bull case amidst present-day economic headwinds. Join me as I continue to breakdown their business model, fundamentals along with both bull and bear cases for MoneyHero Group here!
MoneyHero Group: What Do They Do?
You can find MoneyHero’s official business model breakdown of their business, on the SEC website which they had to publish in accordance with regulations. If you’re still feeling a little hazy after going through the slides, there here’s my TLDR breakdown of their business model.
The above diagram is a breakdown of how the group generates revenue. Bear in mind that MoneyHero Group is predominantly a platform. I summarise their business model in one sentence as follows,
MoneyHero Group generates revenue from the provision of 100% covertable leads to its financial partners. (Once they give a ‘lead’ to their partners, the ‘lead’ cannot back out)
1. Product Partners Pay $$$ to MoneyHero Group
It all starts with banks/financial institutions (aka “product partners”) having the need to onboard new customers on their platform.
Such product partners are often willing to pay a PREMIUM for new customers due to the lifetime value of each customer.
2. MoneyHero Group gives incentives to Consumers
To attract consumers like you and me, MoneyHero Group does the ‘marketing’ on behalf of their product parents. Their channels include a large network of affiliates, content marketing and social media marketing.
The hook that they use include familiar offers you see like “$500 instant cashback”, “FREE NINTENDO SWITCH” or “FREE EARPODS”
3. Consumers fulfill a criteria to be awarded the “gift”.
Nothing comes free in this world and to this end, for the average consumer to receive the free gift, they must commit to the terms set by the respective financial product. Such terms could be something like a minimum spend with the credit card or a minimum lock in period for an insurance plan/brokerage account. Should these terms be met, the gift will be awarded.
4. MoneyHero Group passes 100% convertible leads to their Product Partners
100% convertible leads refer to consumers like you and me who want the gift and won’t back out on the “agreement/criteria”.
As consumers like you and me want the “free gift” for whatever reason, we will usually have to consent to an agreement with the group to fulfill certain criteria in exchange for the gift.
MoneyHero pays for the gift, gets paid by their Product Partners, gives you the gift and everyone is happy.
If you’re wondering, their gift is 100% legitimate. I have received both a Nintendo Switch and Earpods from the company for signing various credit cards hence their business model is not dubious or questionable in any way.
What are MoneyHero’s margins?
Based on publicly available information, the Cost of Goods Sold for the group sits consistently at about 50%, hence I speculate that it is likely that Product Partners pay them double of what they spend to acquire consumers like us.
In dollars and cents, figuratively speaking, if the Group spends $300 on a Nintendo Switch Gift to acquire a customer like me for a bank, it is likely that the bank pays MoneyHero $600 for every lead.
How is MoneyHero’s Fundamentals?
With the limited information I have on hand, here’s my conclusion on their fundamentals.
1. Unimpressive Revenue Growth
Revenue Growth is not impressive for such a young company at its growth stage. But I will explain later on why this could become a potential catalyst.
2. Average Revenue Per User (ARPU) is falling drastically
When we put both revenue and product applications side by side, we can see that revenue is not growing proportionately to the number of applications. In fact, based on my calculations, ARPU has fallen by almost 40%. (Will expand on this in the section below)
3. Adjusted EBITDA is reaching Profitability or is it?
While losses for 1H2023 doubled from 1H2022, overall EBITA showed 90% improvement. The main contributor to this was an “increase in fair value of warrant liabilities”.
As public information is still brief at present, it is difficult to speculate on the credibility of this $55M. At best, I would attribute it to some fundraising from the SPAC. Regardless, it does seem like a convenient time for such an amount to be “added” right before their listing.
Bull vs Bear Case for MoneyHero Group
🐮Bull Case
As credit card adoption rates rise throughout the rest of South East Asia, the Group is in an incredibly good position to capitalize on this given that Singapore as their “test bed” has yielded extremely good results.
This is further supported by an increase in revenue from Emerging Markets.
One could even go further and speculate that revenue is somewhat in a consolidation phase as efforts to go “all out” in Emerging Markets have yet to actualize.
Given the high lifetime value of a customer for a bank/financial institution, there are further monetization opportunities for the group given that they could consider some form of revenue sharing with their partners.
🐻Bear Case
Lower ARPU
It comes as no surprise given that inflation has reduced discretionary spending. Inflation is not likely to lower anytime soon (with the commencement of another War) hence this may further reduce the revenue per application.
Widening Losses
Despite their “meaningful improvements in Adjusted EBITDA in 2023”, fact of the matter is that their operational losses are widening. While management can argue that adjusted EBITA improved by 90%, majority of these improvements come from the $55M of “increase in fair value of warrant liabilities and the derivative components of loan notes.”
To my knowledge, this is neither revenue nor capital gains from an investment. (Happy to hear from readers what they think of this in the comments below)
Lack of an Economic Moat
There is no secret to this business or any sacred intellectual property that they have. Even their competitor (moneysmart.sg) who is in the same business as them has an almost similar name. (I’m really clueless, who copied who?)
Timing
Valuations for Fintech companies globally are not at their prime. Just take a look at companies such as Paypal, StoneCo Ltd, Upstart Holdings etc.
While MoneyHero’s business is vastly different where they do not hold on to any deposits from customers, they are proclaiming to be the “leading fintech company in Greater Southeast Asia”.
To add to this, of late, we have had Fintech companies shutting down in Singapore such as the recent closure of MoneyOwl and the cessation of GrabInvest.
Overall, the outlook is bleak for any loss-making Fintech company at present.
Would I invest in MoneyHero Group?
Personally, I do not think that MoneyHero would be a good investment in the long run as I find their business model limiting. I also find it incorrect to value them as a Fintech company as they do not hold on to customer deposits and their business model requires them to be extremely inventory intensive (think about how many Earpods/Nintendo Switch they have to purchase and keep).
Furthermore, the simplicity of their business model makes it incredibly simple to replicate compared to a company like Google where it’s almost impossible to explain in detail what they do.
That said, companies such as MoneyHero with a low float often make good trades as any moves to the upside are often big due to the spread. Reference to the Ohmyhome chart below where their stock 10x in 2 weeks.
That was a good trade. History may repeat itself hence I will be keeping my eye out for any volatile moves to the upside for MHY.
Now is the time~
90% off from IPO price 🙂