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MoneyLion (NYSE:ML) has turned adjusted EBITDA and free cash flow positive and looks poised to continue its recent operational moment.
Company Profile
ML is a financial product and services company for both consumers and enterprises.
On the consumer side, the company offers a suite of services through its free-to-download app. Among its products and services include RoarMoney, which is its FDIC-insured demand deposit account that includes a virtual debit card and carries a zero minimum. The company charges $1 a month in admin fees for the service. ML also offers a 0% APR cash advance through its Instacash service, and Credit Builder Plus service to help customers rebuild credit history and have access to loans. It also offers an online investing account, cryptocurrency account, and content.
On the Enterprise side, ML has an enterprise marketplace where its product partners can offer consumers on its platform a variety of products, such as loans, savings, credit cards, insurance, mortgages, education, automotive and travel. ML also offers media and marketing services to its Enterprise partners.
Opportunities and Risks
ML stock has been on a rollercoaster of a ride since it went public via a SPAC in 2021. The stock almost immediately crashed and the company eventually enacted a 1 for 30 reverse split in April of 2023. However, the stock went on a huge rally to close out 2023, but has had a difficult start to 2024.
One of the issues with ML when it first came public was that it was just too early in its life cycle as a business. This was a problem with many companies during the SPAC boom, and most of them just got thrown together and tossed aside. ML was growing fast, but it wasn’t profitable and it didn’t have the scale and size needed at the time.
Fast forward to today, and the company has proven it can still grow revenue quickly, while being EBITDA and free cash flow positive. In Q3, it grew revenue 24% to $110.3 million, while adjusted EBITDA went from a loss of -$14.4 million to a gain of $13.4 million.
It generated free cash flow of $34.6 million for the quarter, and $69.9 million through the first nine months of the year.
Impressively, the company increased its number of customers in the quarter by 124% to 12.1 million, and its total number of products used by 80% to 20.3 million. Total loan originations rose 26% to $564 million.
Looking ahead, ML forecasts full-year 2023 revenue to be between $420-425 million, representing 24% growth at the midpoint, and for adjusted EBITDA to be between $39-45 million. That compares to revenue of $340.8 million and adjusted EBITDA of -$63.3 million.
Going forward, one of the big opportunities for ML is to expand its enterprise marketplace. Personal loans have been the biggest vertical on the company’s enterprise market place, but it has begun diversifying into other areas. In Q3, the personal loan vertical represented about 55% of its enterprise market revenue, but that was down from 85% a year ago.
Meanwhile, the company is looking towards other verticals, such as credit cards, mortgages, and insurance, to help continue growing this segment of its business. It also noted that 80% of new customers in the quarter started by using a third-party product.
Continuing to add new customers is another opportunity for ML. As noted above, the company saw a huge year over year jump in customers, showing that it has been effective in this area. The company added 2.2 million customers last quarter, after getting about 60 million inquiries.
Its customers acquisition costs are very low at under $15 per customer, and it gets a quick payback within three months. Customers average 1.7 products. The company should have plenty of opportunities to cross-sell these customers either 1st party or 3rd party products over time, as well. That is a powerful model.
When it comes to risks, the company offers loans and cash advances to its customers, which exposes it to credit risk. The cash advances come with no credit check, but should be covered by a history of recurring deposits. The loans, meanwhile, tend to be low, with the average $721 with an APR of 21.45% at the end of 2022. ML had $171.4 million in loan receivables outstanding at the end of Q3. Its provision expense as a percentage of originations was only 3.7% in Q3 down from 5.3% a year ago, showing that it has been handling this risk well.
ML’s enterprise business is also very much a lead generation, advertising-based business. In certain environments, its enterprise customers can decide to cut back on their customer acquisition efforts, which could impact this side of the business for ML as well.
In many cases, ML is servicing lower income customers. During periods of economic weakness, these customers sometimes can be more impacted. This can hurt both on the credit risk side, as well as with the usage of other products as well.
Valuation
ML trades around 9.1x the 2024 consensus adjusted EBITDA of $66.1 million and 6.6x the 2024 consensus of $91.5 million.
The company has 853,333 warrants outstanding with a $345 exercise price.
ML is expected to turn EPS positive in 2025 with the consensus at $1.83. That would put it at a forward P/E of 26.3x.
ML is projected to grow its revenue by 24% in 2023, followed by growth of 22.5% in 2024 and 19% in 2025.
When you look at competitors, you have lead generation companies like LendingTree (TREE), which trades at 9.3x 2024 EBITDA, but which has been struggling in a tough mortgage market, and NerdWallet (NRDS), which trades at 9.4x 2024 EBITDA. Both are expected to see low to mid single digit revenue growth in 2024.
Given its higher growth and expanding margins, I think ML could command an 8-12x multiple of 2025 EBITDA, which looks reasonable given its momentum. That would value the company between $65-$100 and doesn’t take into consideration it reducing debt from its strong FCF.
Conclusion
ML has done a nice job turning adjusted EBITDA and free cash flow positive, while keeping its credit risk in check. With low customer acquisition costs, it has a nice opportunity to grow its existing customer base, while also having the opportunity to cross sell to these customers.
The company is still in the early days of growing its enterprise market lead generation business. Expanding its verticals in this business represents a nice opportunity and should be a nice growth driver moving forward.
With its solid free cash flow, I’d also expect the company to start to pay down debt, helping reduce its interest expense. The company had $194.4 million in debt and $94.3 million in cash on its balance sheet at the end of Q3. Given its strong free cash flow generation year it could be net debt positive by the end of 2024. This should help it turn EPS positive.
As such I’m going to start ML with a “Buy” rating and $80 price target.
