Acquisition Of Sertifi And Global Expansion Will Unlock New Market Opportunities

Key Takeaways

• Acquisition of Sertifi boosts travel vertical, unlocking new subsegments and monetizing significant payment volumes.
  
• Strategic investments in products and networks fuel growth, diversify education business, and mitigate macro and regulatory challenges.
  
• Changes in student visa policies and competitive pressures in key markets challenge Flywire's revenue growth, necessitating investments that could squeeze margins amidst macroeconomic headwinds.

Catalysts

Operates as a payments enablement and software company in the United States and internationally.

• The acquisition of Sertifi is seen as a catalyst for revenue growth in the travel vertical. The integration offers immediate access to new subsegments of the travel industry and the potential to monetize several billion dollars of payment volume annually.
  
• Strategic investments in new products and payment network capabilities are expected to drive future revenue growth and diversification within their existing education business, strategically offsetting macro and regulatory headwinds.
  
• Expansion in global education markets, particularly in strong-performing regions like the U.K. and EMEA, with over 50% growth, underscores opportunities for revenue increases and client wins despite challenges in other markets.
  
• The ongoing operational review aims to identify efficiencies and synergies across the business, potentially improving net margins through cost reductions, operational streamlining, and reallocation of savings towards strategic growth initiatives.
  
• Flywire's data-driven approach to capital allocation, including investment in high-traction areas and disciplined cost management, supports improved earnings and potential share buybacks, enhancing shareholder value and EPS growth over time.

Flywire Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Flywire's revenue will grow by 14.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.6% today to 8.5% in 3 years time.
• Analysts expect earnings to reach $63.8 million (and earnings per share of $0.35) by about March 2028, up from $2.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $88.7 million in earnings, and the most bearish expecting $25.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.6x on those 2028 earnings, down from 442.8x today. This future PE is greater than the current PE for the US Diversified Financial industry at 15.4x.
• Analysts expect the number of shares outstanding to decline by 0.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.93%, as per the Simply Wall St company report.

Flywire Future Earnings Per Share Growth

Risks

• Changes in student visa policies in key markets like Canada and Australia have led to significant revenue shortfalls and are forecasted to cause a further 30% revenue decline in these markets in 2025. This poses a risk to Flywire's overall revenue growth expectations.
  
• Macroeconomic factors, including foreign exchange (FX) headwinds, resulted in a $3.3 million revenue reduction in Q4, and ongoing FX volatility is expected to impact revenue by approximately 3 percentage points headwind throughout 2025, potentially affecting net revenues.
  
• Increased competitive pressure in markets such as the travel vertical, despite showing strong growth, requires Flywire to continue investing heavily, potentially squeezing net margins if revenue growth does not meet expectations.
  
• The ongoing restructuring and operational review, which includes staff cuts and cost optimizations, while aimed at enhancing long-term efficiency, could lead to short-term operational disruptions and incur onetime restructuring charges of $7 to $9 million impacting earnings.
  
• The U.S. education market, seeing a slowdown in student visa trends, poses a risk to revenue growth if this trend continues or worsens, particularly as Flywire has modeled U.S. growth cautiously.

Valuation

• The analysts have a consensus price target of $17.083 for Flywire based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $26.0, and the most bearish reporting a price target of just $14.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $747.3 million, earnings will come to $63.8 million, and it would be trading on a PE ratio of 39.6x, assuming you use a discount rate of 6.9%.
• Given the current share price of $10.39, the analyst price target of $17.08 is 39.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.