Mogo Inc. (NASDAQ: MOGO) recently made it to our watchlist, and for good reason. The Canadian FinTech play is locking down the Canadian market with incredible success.
We’ve heard about PAUL stocks, or stocks centered around mobile apps making real economic and social difference, across the United States. However, when it comes to PAUL opportunities, in my opinion, MOGO is one of the best.
Not only has the company proven that it can lock down a market with its leadership in Canada, the company is well on its way to proving that it has a recession-proof business model, with expectations to report overwhelmingly positive financial data in early August. Not to mention, the stock trades at just 1.7 times 2021 revenue expectation in an industry that has seen a number of fintechs like Shopify (NASDAQ: SHOP) trading over 30x 2021 revenue and the industry average 15 times 2021 revenue expectations.
What Is Mogo?
Mogo is a Canadian FinTech company whose flagship product is the Mogo App. Consumers can sign up for the app in a matter of minutes, opening the door to a suite of free, or low-cost financial products and throwing a wrench into the plan of the high-cost, convoluted Canadian banking system of yesterday.
Once consumers sign up for the Mogo App, they have access to six products, including free credit score monitoring, identity fraud protection, digital spending account with Platinum Prepaid Visa Card, digital mortgage experience, the MogoCrypto account, and MogoMoney, a platform providing access to smart consumer credit products.
The company’s model is attracting quite a bit of interest as well. In fact, the Mogo App now has over 1 million members, a number that has been consistently growing for several consecutive quarters.
COVID-19 Created An Opportunity Here
Prior to COVID-19, Mogo shares were trading in the range between $2.50 and $3.00 per share. However, concerns surrounding the company’s ability to turn cash flow positive as well as the potential that the pandemic would lead to excessive defaults has led to the stock falling to current prices of around $1.00 per share.
Interestingly, Mogo hasn’t seen any substantial increase in defaults as a result of the pandemic and doesn’t seem to expect to. As such, these COVID-19 related fears are overblown, leading to a massive discount in the price of shares.
In fact, the average FinTech company is trading at around 13.5 times expected 2021 revenues. MOGO, on the other hand, is trading at just 1.7 times expected 2021 revenues, outlining the incredible discount we’re seeing here.
Mogo Is Working Toward A Cleaner, More Sustainable World
Last year, Mogo announced that it intends to join the effort toward a more sustainable way of life. After all, financial health and environmental health go hand in hand.
To do so, the company designed a carbon offset program for MogoSpend. For every dollar spent using the Mogo Visa Platinum Prepaid Card, the company will offset one pound of CO2 on its customer’s behalf.
In the company’s first quarter financial report, Mogo announced the successful beta launch of this program. Moving forward, the company is expecting to rollout the full program in the third quarter of this year.
Should all go well with the launch of this program, the company’s MogoSpend and accompanying prepaid Visa could quickly become Canada’s version of the hugely successful CashApp from Square (NYSE: SQ).
A Recession-Proof Business Model That’s Hard To Ignore
The COVID-19 pandemic has had a big impact on the financial industry. With so many losing their jobs, businesses going under, and financial uncertainty around the world, banks have had to divert massive amounts of money in loan payments to help consumers avoid defaulting.
However, Mogo’s diverse revenue stream that increasingly is driven by high margin Subscriptions & Services revenue also includes a small on balance sheet loan portfolio. In this segment, Mogo’s strategy also seems to be right on target with their low dollar amount, low payment loans continuing to perform well. Not only has the company not yet see any significant increase in defaults as a result of COVID-19 but it has actually been seeing record low defaults by their customers.
Beyond that, Mogo has long said that it has the ability to greatly reduce operating costs rapidly, and based on the guidance issued with its most recent financial report, they’re about to prove it.
In the first quarter earnings report, the company reported net cash in the negative, -$4.3 million to be exact, before one-time proceeds from the sale of the MogoLiquid loan portfolio. However, in Q2 it is expected that the company will generate positive net cash in the positiveflow between $5 million and $6 million for the quarter. That’s a single quarter positive swing in net cash of between $9.3 million and $10.3 Million. This kind of move in a COVID-19 pandemic environment would be overwhelmingly positive.
Mogo Has Sezzle-Like Potential
When I think of Mogo, one of the first comparisons that comes to mind is a United States fintech company known as Sezzle (ASX: SZL). The company decided to trade in Australia, hoping to build on the hype that the Australian player, Afterpay (ASK: APT), has already created.
Both Mogo and Sezzle focus on the financial wellness of millennials, and have a proven ability to attract members. Recently, in fact, as recently as April, Sezzle was trading at a sub-A$0.40 level. As investors started to realize the opportunity the stock represents, it started to fly. Today, the Sezzle trades at around $A8.00 per share, just a few months later, and Mogo has the potential to see the same type of action, especially considering the extreme undervaluation at 1.7 times 2021 revenues.
The Bottom Line
The bottom line is that while consumers continue to look for easier, yet more effective ways to manage their money in Canada, Mogo’s base of active users is growing. At the same time, the company has designed a lending product that is outperforming big-bank lending products by leaps and bounds, a business model that allows it to adjust for expected economic decline, and a corporate plan that will likely lead to profits relatively soon.
With the coming launch of the Mogo prepaid Visa and carbon offset program, drastic undervaluation, and incredible performance so far in the midst of the COVID-19 pandemic, MOGO looks like the next stock to benefit from the increasing investor attention on fintechs.
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