Mogo, Inc. (NASDAQ: MOGO), dubbed the “Square CashApp of Canada” saw strong gains last week after reporting its financial results for the third quarter, blowing away expectations with an industry leading 50% EBITDA margin and 85% growth in net member additions. Despite Mogo’s recent gains, the stock remains the most undervalued public fintech play today with a potential 10X upside opportunity if it traded in line with its closest comparable.
Mogo is the leading consumer fintech in Canada and one of the pioneers globally. of digital wallets in Canada, and has enjoyed dominance in the quickly growing fintech sector in the country. In fact, Mogo is so dominant in the region that it is often referred to as the Square Cash App of Canada in the investing community.
This, combined with a focus on improving financial and environmental health at the same time sets the company apart from any of its competition in the space. Here’s how I see it:
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Mogo Reported Compelling Financial Results
As mentioned above, when Mogo dropped its Q3 financial results, the stock saw dramatic gains.
With the financial results being at the center of the run, I figured this would be a great place to start. Here’s what we saw from the Q3 earnings report:
- Revenue. Core revenue proved to be a big hit for MOGO, coming in at $9.8 million. This was especially exciting considering the figure beat the company’s own guidance of between $9.5 and $9.7 million
- Adjusted EBITDA. Adjusted EBITDA also beat the company’s guidance, coming in at $4.8 million on 49% margins. Not only did the figure blow away the company’s guidance of between $3.8 million and $4.2 million, it represents a 346% increase on a year over year basis. Notably, margins also increased dramatically year over year, with Q3, 2019 margins coming in at just 7%.
- Record Gross Margins. For the third quarter, MOGO beat a record, with gross margin coming in at 93%. The increase was based on strong loan performance as well as a significant reduction in growth related expenses. In fact, it was this improvement that led to the 346% increase in Adjusted EBITDA.
- Net Cash In Line. Net cash from operating and investing activities came in at $4.4 million. That figure ended near the high end of guidance, which suggested net cash from operating and investing activities would come in between $4.0 million and $4.5 million. $3.3 million of this positive cash flow was generated outside of the company’s loan book, a dramatic increase from $1.9 million in the second quarter.
- Adjusted Net Income. Adjusted net income came in at $3.4 million, an $8.6 million improvement over the loss of $5.2 million reported in the third quarter of 2019.
- Net Income. Finally, net income came in at $1.0 million, up from a loss of $6 million in the same quarter last year.
In a statement David Feller, Founder and CEO at MOGO, had the following to offer:
“The adoption of digital banking, digital wallets, and financial health are all powerful long-term trends that have accelerated in 2020, and Mogo – with its unique multi-product financial health solution – is clearly benefiting from these trends. We continue to build our member base, and this quarter we saw increased growth driven by our recently launched free ID fraud protection product and our MogoCard, with its innovative carbon offsetting feature. We have also seen a big increase in bitcoin accounts, and our recently announced bitcoin rewards program should help to continue this growth as more and more Canadians look for exposure to this asset. As we look ahead to 2021, these enhanced products, along with our upcoming peer-to-peer payment solution, should position us to generate increased member engagement, monetization and top-line growth.”
The above statement was followed up by Greg Feller, President and CFO at MOGO. Here’s what he had to offer:
“Our third-quarter results continue to underscore the core profitability and cash generation capability of our financial model. We met or exceeded our guidance on key measures, highlighted by another quarter of strong Adjusted EBITDA, record Adjusted EBITDA margins, positive net income of $1.0 million, and an increase in our cash balance. As we transition back to growth mode heading into 2021, we are financially well positioned and have a growing number of paths to monetizing our more than one million members.”
Undervaluation in the Spotlight
The strong performance from MOGO further validates the fact that the stock is severely undervalued. Considering the general notion that MOGO is the Square Cash App of Canada, take a moment to compare valuation metrics between the two.
The following valuation metrics were compared on November 13, 2020:
|Price to 2021E Revenue||2.4x||25x|
|Price Target Upside||72.73% (based on $3.04 average price target)||5.25% (based on $187.88 average price target)|
Looking at these valuation metrics, it’s clear to see that Mogo, the Square Cash App of Canada, has massive room to grow, and I believe it’s more than capable of doing so. Although the US is 10x larger than Canada, Square’s market cap is almost 1500x greater!
Now let’s look beyond financial results and valuation metrics for a moment.
Mogo’s digital spending account with Carbon Offset & Biden Win
Mogo recently launched a digital spending account, called MogoSpend that comes with a Platinum Visa spending card.
On top of the traditional benefits of a Visa card, MogoSpend helps members track their spending in order to better align their financial activities with their budgets and financial goals.
To add a little icing to the cake, MOGO has made a very big promise to its members. The company has promised to offset one pound of CO2 on behalf of its members for each dollar spent using the MogoSpend account. That’s a huge advantage that will likely yield serious rewards relatively soon. This is especially the case after a Joe Biden win.
But Biden is going to be the President of the United States, what does that have to do with a Canadian fintech stock? EVERYTHING.
Joe Biden has a strong history of environmental awareness, and has been incredibly outspoken when it comes to the need to provide clean energy and offset CO2 emissions in any way possible. As the leader of the free world, with such a strong conviction surrounding environmental health, Biden is likely to not only make major regulatory changes in terms of energy and emissions in the United States, but he is also likely to push ally countries to do the same.
The likely result is regulatory support from governments around the world, including potential implications like tax reductions, funding, and more aimed at companies with an intent of improving environmental conditions.
As a result of the fact that MOGO is working to help create a greener planet while improving financial stability for its members, the company will not only benefit from organic growth, but from increased support from regulatory agencies. Ultimately, the Biden win was a win for MOGO.
Coming P2P Launch and transition to Digital Wallet
The Mogo/Square comparison lacked one important feature. Square allows members to send payments to other members through their mobile app. Mogo never did. Well, that changes very soon.
MOGO recently announced that it will be launching a peer to peer payments solution that will allow members to send payments to other members through the mobile app, adding to the long list of capabilities and further solidifying the company’s position as the Cash App of Canada.
The combination of its upcoming P2P solution alongside of its digital MogoSpend account as well as its Bitcion account will solidify its position as the leading digital wallet in Canada. With their unique product solution this puts their app on par with Square’s CashApp as well as PayPal and their Venmo solution.
The peer to peer payments solution is expected to launch in early 2021 so another catalyst to look forward to.
A Strong Cryptocurrency Play
Cryptocurrency has become a hot topic over the past few years, with recent trends in demand for cryptocurrency in Canada being quite compelling. As one of the pioneers in making Bitcoin available to consumers in Canada, MOGO is tapping into this market in a big way, offering members the ability to buy and sell Bitcoin through MogoCrypto. In fact, Mogo is the only public company in Canada offering Bitcoin to consumers which gives it a big advantage over its competition.
This is an incredibly important factor to consider. PayPal has recently seen incredible success with Bitcoin as well as Square through their CashApp, but neither of these players offer the service in Canada. As such, Mogo fills a void, which could pull consumers away from PayPal’s digital wallet services and into the MOGO ecosystem.
Operational Growth Adds to the Opportunity
From an operational standpoint, MOGO has been firing on all cylinders. In the third quarter, net member additions were up 89% on a sequential basis. Total members climbed 16% on a year over year basis.
Perhaps even more impressively, and serving to validate the cryptocurrency statements made above, the company’s Bitcoin accounts increased by 237% on a year over year basis.
Moreover, the MogoSpend carbon offset program is proving to be a smash hit. As a result of the launch of the program, average spend per card is up 66% since January of this year.
Simply put, the numbers don’t lie. Looking at the numbers clearly outlines the opportunity surrounding the stock.
The Bottom Line
Mogo is an innovative leader in the fintech and digital wallets space in Canada. Often referred to as the Square Cash App of Canada, Mogo is a dominant figure in the region.
With the company’s most recent financial results showing compelling growth, even in the face of COVID-19, it’s clear that the company is keeping its promises to investors. Moreover, with the coming rollout of peer to peer payments, the recent launch of MogoSpend, and the company’s likeness to take the lead role on the Canadian Bitcoin stage, MOGO stock is one that you should be paying extremely close attention to.
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