Rising Compliance Fees And Blockchain Threats Will Squeeze Margins

Key Takeaways

• Rising regulatory costs and industry disruption threaten margins as compliance burdens increase and cross-border payment competition intensifies.
  
• Shifts in global mobility and rapid tech innovation undermine revenue growth and expose Flywire to ongoing strategic and execution risks.
  
• Diversified vertical expansion, digital innovation, and global regulatory tailwinds are enabling high-margin growth, resilience, and expanding international opportunities for Flywire.

Catalysts

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

• Ongoing tightening of global regulatory standards and increased regulatory scrutiny for cross-border payments are likely to drive compliance costs significantly higher for Flywire, which could erode net margins over the long term as the company must commit more resources and investment to adhere to a patchwork of evolving jurisdictional requirements.
  
• Sustained de-globalization and persistent geopolitical tensions threaten to limit international student mobility and cross-border financial flows, directly reducing Flywire's core revenue base and stalling transaction volume growth, particularly in key education verticals that have traditionally fueled the company's expansion.
  
• The rapid commoditization of cross-border payments, driven by widespread adoption of instant, real-time solutions by larger incumbents and national payment networks, is poised to erode Flywire's pricing power and transactional margins, making it increasingly difficult to maintain historical revenue growth as competition intensifies and differentiation narrows.
  
• Flywire's aggressive expansion into new verticals and geographies exposes the business to elevated customer acquisition costs and substantial execution risk, with the risk of misallocating resources to markets or sectors that fail to deliver the anticipated volume or monetization, ultimately putting further pressure on operating leverage and long-term earnings.
  
• The accelerating evolution of blockchain and decentralized finance threatens to structurally disrupt the traditional payment intermediary space by enabling faster, lower-cost, and more secure cross-border transactions outside of Flywire's network, placing its core business model and future growth prospects at risk and ultimately jeopardizing enterprise value.

Flywire Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Flywire compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Flywire's revenue will grow by 12.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.3% today to 6.7% in 3 years time.
• The bearish analysts expect earnings to reach $51.8 million (and earnings per share of $0.61) by about August 2028, up from $6.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 32.6x on those 2028 earnings, down from 211.1x today. This future PE is greater than the current PE for the US Diversified Financial industry at 16.3x.
• Analysts expect the number of shares outstanding to decline by 2.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.57%, as per the Simply Wall St company report.

Flywire Future Earnings Per Share Growth

Risks

• The ongoing globalization of commerce and education continues to fuel strong cross-border payment volume, and Flywire is benefitting from secular increases in higher education mobility and travel, which supports long-term revenue growth.
  
• Accelerating digital transformation across industries is driving institutions and enterprises to consolidate vendors and adopt modern, efficient payment platforms like Flywire, which enhances client stickiness and supports both top-line growth and improved gross margins over time.
  
• The company's expansion into new markets and verticals-including B2B payments, travel, and health care, evidenced by strong recent client wins and the integration of acquisitions like Sertifi-provides additional revenue streams and a diversified base, supporting resilience in revenue and margins even if one sector faces headwinds.
  
• Flywire's investments in proprietary payment infrastructure, automation, and AI-based operational efficiencies have led to demonstrable cost savings and higher productivity, enabling scalable, high-margin growth and potential ongoing gross margin expansion.
  
• The trend towards regulatory standardization and harmonization in global payments is reducing operational complexity and enabling further international reach for specialized providers like Flywire, unlocking new addressable markets and supporting sustained earnings growth.

Valuation

• The assumed bearish price target for Flywire is $12.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Flywire's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $18.0, and the most bearish reporting a price target of just $12.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $773.5 million, earnings will come to $51.8 million, and it would be trading on a PE ratio of 32.6x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $11.79, the bearish analyst price target of $12.0 is 1.8% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.