ML - MoneyLion: Buy This Stock At 5x EBITDA

2023-11-17 03:41:04 ET

Summary

• MoneyLion delivers strong Q3 results, outperforming other struggling fintech companies.
• The company's consumer business dominates, with strong growth in adoption of third-party products.
• MoneyLion's profitability profile is a significant asset, with a strong EBITDA run-rate and consistent financial growth.

Investment Thesis

MoneyLion ( ML ) delivers strong Q3 results. But what makes this stand out even more, is that this fintech appears to be shining even as other fintech companies appear to be struggling.

The graphic above shows the date I first recommended this stock in my Service. There's a lot to like about this stock, but I'll skip to the punch line, that it's seriously cheap at 5x EBITDA.

Quick Recap,

Previously I said ,

MoneyLion is rapidly increasing its profitability. According to my estimates, at this rate, MoneyLion is likely to close to make $60 million of EBITDA in 2024. This puts the stock priced at 4x next year's EBITDA. Perhaps even cheaper than this.

Not only do I reaffirm this aspect, but I now believe this turned out to be too conservative.

Near-Term Prospects

MoneyLion is a financial platform that serves both consumers and enterprises. In its Consumer business, it's 1st party consumer-facing business, MoneyLion offers a range of first-party financial products and services, including RoarMoney, a digital demand deposit account, Instacash, a 0% APR cash advance product, and Credit Builder Plus, a membership program that helps customers build and monitor their credit history.

MoneyLion also has a 3rd party marketplace finance business.

As you can see above, MoneyLion's Consumer business dominates, at approximately 60% of the overall business. This side of the business, its consumer segment has taken over and delivered strong outperformance, particularly compared with the same period a year ago, see below.

But what's particularly impressive to see is the growth in the adoption of 3rd party products.

As noted on the earnings call , approximately 80% of the customers added in the third quarter took a third-party product as their first product on the platform, demonstrating the success of their marketplace approach.

What's more, as I've stated on numerous occasions, the best indication of a thriving business, is one that sees a strong and steady customer adoption curve.

While it's inevitable that MoneyLion will see its customer adoption curve slow down at some point, for now, it's still delivering triple-digit customer growth rates. That's a clear indication that its users are resonating with the fintech app.

Next, let's dig into its financials.

Revenue Growth Rates Stabilize

MoneyLion's growth rates slow down. Despite much easier comparables with the prior year, we don't appear to be seeing its revenue growth rates accelerating.

On the other hand, when I compare this company's progress with either Toast ( TOST ) or Upstart ( UPST ), I'm very much satisfied that this business is still able to deliver any growth. Let alone mid-20s% growth rates.

Profitability Profile is This Business' Crown Jewel

MoneyLion's guidance for Q4 points to about $13 million of EBITDA. Why is this important? Because this implies that on a forward run-rate this business is now delivering close to $55 million of EBITDA.

Accordingly, I believe that's entirely likely that MoneyLion could see close to $70 million of EBITDA in 2024. This implies that MoneyLion is priced at less than 5x EBITDA.

While I recognize that fintechs are extremely volatile and unpredictable and compete against countless peers, to the best of my knowledge, the vast majority of them are unprofitable enterprises that are leaking cash.

But the biggest and most interesting matter of all is this. Unlike SoFi Technologies ( SOFI ) or Lending Capital ( LC ) this business doesn't need to lean on its balance sheet to grow its business. This is an asset-light brokerage platform.

That's not the case with MoneyLion.

The Bottom Line

MoneyLion's strong performance in Q3, coupled with its robust and thriving consumer segment, underscores its resilience and market dominance within the fintech industry.

With an impressive adoption rate of third-party products and sustained triple-digit customer growth, MoneyLion's success appears to be outshining its peers.

Additionally, the company's profitability profile remains a significant asset, with the business demonstrating a strong EBITDA run-rate and delivering consistent financial growth.

As it continues to solidify its position in the market, MoneyLion stands as a noteworthy example of a profitable enterprise in a field largely characterized by volatility and cash leakage, making it a standout performer within the fintech sector.

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