We introduced Mogo Inc (NASDAQ: MOGO) stock to you on Tuesday. If you acted on the introduction, you would have seen tremendous gains yesterday. The stock was trading on crazy volume, with intraday highs clocking gains of more than 150%. It was the #3 gainer on the NASDAQ for the session and shares traded hands more than 16 million times.
The gains were the result of the release of the company’s preliminary second quarter results, and there’s good reason for the excitement. I strongly suggest that you take the time to read it here. Nonetheless, here are a few bits of data that I think it’s important to highlight here:
- Adjusted EBITDA: In Q1, Mogo reported adjusted EBITDA of $0.5 million. In the release, the company said that it Now expects Adjusted EBITDA for Q2 to come in the range between $4.5 million to $5 million. That represents quarter over quarter growth of 9 to 10 times Adjusted EBITDA.
- Net Cash From Operating & Investing Activities: This is where things get VERY INTERESTING. In Q1, Mogo reported net cash from operating and investing activities in the amount of -$4.3 million. At the time, the company guided that it would turn cash flow positive in Q2 and be in the range of $5 to $6 million for the quarter. That alone would be impressive, representing a single-quarter swing in net cash of between $9.3 and $10.3 million. Now, the company expects net cash from operating and investing activities to come in the range between $6.5 and $7 million, widening that swing to between $10.8 and $11.3 million. That’s impressive by any stretch of the imagination and clearly was not expected from the market.
The tremendous growth in these two figures further serves to validate the resilience of the company’s financial model given the COVID-19 related challenges being faced as we speak. Not to mention, Mogo is only trading about 2 times projected 2021 revenues even after yesterday’s gains. To put that into perspective, public fintechs like Square (NYSE: SQ), Afterpay (ASX: APT) and Shopify (NASDAQ: SHOP) are trading at 17 to over 40 times 2021 projected revenue.
So, yesterday, when the company announced its expectations for its second quarter financial results, investors’ eyes were opened to the opportunity that lies ahead with this stock. We’re talking about a company that is extremely undervalued compared to its peers, is able to generate massive improvements in cash flow with the push of a button, and, as you will learn below, mirrors one of the biggest players in FinTech today, Square and its Cash App.
All of this seems to be the driving factors behind the fact that analysts and investors are beginning to fall in love with MOGO stock. In fact, just yesterday, Canaccord Genuity increased their price target on the stock from $3 per share to $4. The same was seen from Eight Capital, which set the price target on the stock at $5 per share, citing better than expected revenue, EBITDA, and net cash.
I’m here to tell you that the fun’s not over yet! As reality sets in that Mogo is indeed the Square Cash App of Canada, the stock is likely to see further tremendous growth.
Let’s Take A Look At The Square Cash App
Before I can properly explain why I believe that Mogo is poised for Square Cash App-like growth, it’s important that you know what the Cash App is and the tremendous success the app has created for Square.
The Cash App is an all inclusive digital wallet. Through a membership with the cash app, consumers are able to access the following features:
- Payments: The app allows its members to send and receive payments to and from their smartphones. Using a phone number, members can pay loans back to friends, tip professionals and more.
- Digital Banking: The Cash App also has digital banking features, providing its users with routing and account numbers that they can use to accept their paychecks, receive tax returns, or pay bills, service providers and for products online using digital checks. The account also comes with a debit card known as the Cash Card.
- Boost: Boost is a digital coupon of sorts. It offers a digital discount when using the Square Cash Card to make purchases.
- Investing: The app also gives users access to the stock market, opening the door to the ability to build wealth through investing. Importantly, the minimum investment to get started in the Square Cash App is only $1.
- Cryptocurrency: Finally, the Square Cash App gives its users the ability to convert their cash into Bitcoin.
The Cash App, founded in 2013 by Twitter Co-founder, Jack Dorsey the cash app has seen explosive growth. Today, the company has more than 24 million members, and that number is growing dramatically each and every day.
A lot of this growth can be attributed to timing. Square was one of the first digital wallets to hit the scene as American consumers were looking for new, more simple ways to manage their money. As one of the pioneers in the space, the Cash App quickly built a reputation of being one of the best options for the millennial community to access the digital financial tools they’ve been looking for. From there, uptake of the app spread like wildfire and continues to do so.
Of course, the explosive growth in the Cash App equated to explosive growth for Square. In 2019, the company generated a total of about $4.71 billion in revenue. The Cash App contributed approximately $1.11 billion to this total. That’s a whopping 23.57% of the company’s overall revenues.
Mogo Is Very Similar…But At An Earlier Stage In Their Growth
Mogo’s app is very similar to the Square Cash App, and we’ll get to the feature similarities, and what Mogo offers that Square doesn’t in a second. But before we do, one of the most important factors in the comparison between the Mogo App and the Cash App is timing.
As mentioned above, the Square Cash App was founded in 2013 and launched its product to consumers in October of that year. At the time, the idea of digital wallets in the United States was in its infancy, and some even questioned their ability to become a serious product offering among consumers. Nonetheless, the Cash App was one of the pioneers, and enjoyed the rewards as the industry grew into a multi-billion dollar one in the United States.
Mogo is in much of the same position. The truth of the matter is that in the FinTech space, Canada lags behind the majority of developed nations. Even today, only about 19% of Canadians have ever uploaded a digital wallet app. In the United States, 57% of consumers use digital wallets on a regular basis.
With that said, Mogo launched its app in 2016, becoming one of the first to provide a digital wallet style product in Canada and helping to pave the way for what is becoming a booming industry, just as Square did with its Cash App. However, the big difference between the two at the moment is that while Square has an audience of about 43% of the United States that still does not use digital wallet applications, Mogo has a potential audience of about 81% of Canadians who have never so much as uploaded a digital wallet app.
Mogo is sitting on the opportunity now that Square was sitting on seven years ago, and I believe the fact that investors are figuring that out had quite a bit to do with the dramatic gains that we saw from the stock yesterday. Nonetheless, timing is by no means the only similarity between the Cash App and the Mogo App.
Just take a look at the financial services provided through the Mogo App that are similar to the services provided through the Cash App:
- Digital Banking: Similar to the digital banking services offered through the Cash App, Mogo will soon offer its own brand of digital banking, known as MogoSpend where members can receive deposits and manage their spending.
- Prepaid Platinum Visa Card: The MogoSpend account offered will be tied to a Prepaid Platinum Visa card that can be used for day to day purchases online or in stores. This MogoSpend card bears striking similarity to the Cash Card from the Cash App.
- Cryptocurrency: Finally, Mogo users have the ability to buy and sell Bitcoin through the mogo app.
As you can see, the only services offered through the Cash App that aren’t offered through the Mogo App are peer to peer payments services and stock market investing services. While I would expect for these services to come online at some point, Mogo offers its fair share of services that consumers won’t find on the cash app, including:
- Credit Score Monitoring: Mogo was the pioneer of free credit scores in Canada (similar to Credit Karma in the US which was recently acquired by Intuit (NASDAQ: INTU) for $7.9 billion) and offers its members their free credit scores and tools that allow them to keep track of where they stand and improve them.
- Identity Theft & Fraud Protection: Mogo members also have access to tools that give them the ability to stave off identity thieves and fraudsters (similar to Lifelock in the US (NASDAQ: NLOK).
- Lending Services: Finally, Mogo offers its members lending services, providing access to immediate funding of small, unsecured loans.
As you can see, when you compare the services provided through the Cash App and the Mogo app, what you’ll find is a very similar product offering. If anything, Mogo offers its members more than the Cash App already, and its list of services is likely to continue expanding.
The Bottom Line
In the United States, Square’s Cash App has dominated the digital wallet space, and will likely continue to do so. The mix of great timing and a compelling product paved the way to massive success in a product that now represents more than a billion dollars of annual revenue.
Mogo is along the same path. The company offers the most comprehensive digital wallet product available in Canada at a time when Canadians are starting to transition from the convoluted and high cost world of traditional banking to the simplified, low cost tools available in the world of digital banking.
At the same time, Mogo is extremely undervalued when compared to its peers, and the company has shown a level of financial resilience rarely seen in the industry throughout the COVID-19 pandemic. All of this combined suggests that MOGO stock is poised for tremendous gains ahead.
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