RELY 8.1.25

Do customers shop around after that or do you think it's a sticky relationship? I think the average transaction size for them is $400. A little more than 2% on that $8 is $9. If you can save $1 or $2, would people shop and go to use TransferWise instead?

For me, figuring out whether customer relations were sticky was really core to whether I wanted to own this or not. Like any consumer business, they would talk about their lifetime value per customer and their customer acquisition costs. Obviously, you said they just reached the breakeven point, but that's because they chose to reinvest all their cash flow into marketing. It's an investment. It's a discretionary spend. I've seen so many companies that were not profitable, and then they would point at lifetime value versus CAC, the ratio, and it's, "Profitability will come in the future." Then two years later, the market is a lot more competitive, and LTV has actually changed because churn has picked up, and that math just doesn't work. But it does work if you acquire your customers, and they're actually sticky, and they're not going to move to someone else for $1 more or less. Their marketing budget is big. It's $300 million. The majority of that, at least the majority of what goes through the P&L, is Facebook ads. There's a little bit related to the discounts, the vouchers, and any sort of monetary compensation to attract the customer, but a lot of it is just name recognition. So that gave me some comfort. They're not just buying customers hoping that they'll stick around, but for all we know, somebody else might buy the customer from them next year.

Spruce Point?

Well, first, that guy always needs 200 pages to make his point. In this case, it was sloppy work. Most of the time he makes some good points. But I'm not surprised that if you have used a customer testimonial you need approval to use their feedback. Using someone's image, just from an administrative point of view, that's an extra burden. You're not really lying to your customers or your investors if you just use stock images. I think he made some other points. One of his main arguments was that they stopped reporting the take rate, and the take rate came down. They don't report the take rate, but they report the number of transactions and average size per transaction or revenue divided so you can still calculate it. You have your revenue, you have your number of transactions, you have, therefore, the take rate. Yes, it does come down. That's part of the model. You build scale, and you share the scale benefits with your customers to build them out. You talk to management, they will explain that that's the goal here.

Then I think it points out the larger transactions, which, of course — it's bearish. So everything that happens will be explained in a bearish way. But, yeah, there might have been a tiny bit of a pull forward given the uncertainty in immigrants who wanted to move some of their money out of the country. Maybe, sure. There are various reasons to not be super bullish on the company in the near term. But the short thesis on the structural basis is wrong in my point of view.

You pointed out the contribution margin. In my notes, I wrote that it's somewhere between a 50% to 70% contribution margin. The fixed costs are just so big here. Even with marketing expenses, they seem to get more efficient in marketing because there's also a lot of word-of-mouth that works. So their marketing budget isn't going to be that much anymore. Transaction costs come down significantly. They pay a decent amount to stores and correspondent banks. If you do more business with the same correspondent bank, you get better rates. That's how the whole business works. So the structural thesis is definitely there. The question marks are, A, valuation. There are different ways to look at it. I don't think it's that expensive. B, just some of the near term headwinds.