MoneyHero — Investing for the long term

The Q224 results highlighted MoneyHero’s growth in market share in its core regions. Group revenue was up 24% y-o-y to $20.7m (Q223: $16.7m), driven by strong growth in its two core geographies of Singapore (+68%) and Hong Kong (+19%). Offsetting this were declines in Taiwan (down 4%) and the Philippines (down 16%), as some providers halted certain products and new card acquisitions following platform migrations.

MoneyHero’s strategic focus on the higher-margin and fast-growing insurance vertical was reflected as it accounted for a greater proportion of revenues in the quarter: 11%, up from 8% in Q124 and 7% in Q223. The insurance vertical itself grew 89% y-o-y in the quarter. MoneyHero’s largest product vertical, credit cards, continued to deliver robust levels of growth for the group, up 7% y-o-y in Q224 and accounting for 62% of revenues. Credit cards continue to be the foundation of the business, not only because it is the largest product vertical by revenue, but also because it acts as a key channel for MoneyHero to cross-sell or upsell to clients. However, management’s strategic focus remains on the insurance vertical, due to the more attractive margin profile as a higher repeat purchase product.

Profitability fell in the quarter as MoneyHero continued to invest in scaling the business and management prioritised top-line growth to increase its market share. Specifically, management looked to invest in brand and customer acquisition to improve the approved application rate and the user experience and build out its data and technology capabilities. The issues in Taiwan and the Philippines and an exit from a major provider were also detrimental to the bottom line, although management expects these issues to be largely mitigated in H224.

Management has sought to rationalise operating costs to achieve its stated target of being adjusted EBITDA profitable within FY24. In July, the company announced a round of layoffs, reducing headcount by 80 employees, c 22% of the end-FY23 employee headcount. Offsetting this in H124 were elevated costs relating to a public listing. We believe that MoneyHero will start to see the benefits of operational leverage come through in H224 as it continues to scale its capital-light platform. Management has already noted that margins are improving and expects the loss to be within a range of $5–6m in Q324. Adjusted EBITDA profitability is expected in Q424, with an anticipated positive contribution on a monthly basis once achieved.

The balance sheet remains healthy, with $56.5m (excluding lease liabilities) of net cash. Management has signalled its intent to leverage for both core business expansion and strategic M&A opportunities that enhance scale and consolidate market share in its geographies.

In August the company made a non-binding offer to acquire its main competitor in Singapore, MoneySmart, for $8.0m, which would be satisfied in MoneyHero shares with an additional cash consideration amount subject to due diligence results. Although MoneySmart declined the offer, this demonstrates MoneyHero’s commitment to its strategy of growing market share through strategic M&A. We believe it is indicative of the company’s broader inorganic growth strategy, aimed at enhancing market share with strategic acquisitions that support long-term profitability.

Looking at the key performance indicators for the business, although MoneyHero saw fewer unique monthly users quarter-on-quarter at end-Q224, 7.7m (Q124: 8.5m, Q223: 9.3m), its level of approved applications was higher at 211,000 (Q124: 206,000, Q223: 140,000). This highlights management’s success in attracting higher-quality traffic and that the implemented initiatives to optimise conversion rates are beginning to bear fruit. These initiatives include improving the customer experience through personalisation, enhanced through AI capabilities, as well as broadening the customer reach through the ShopHero app and the business-to-business Creatory platform. In H124, MoneyHero processed 970,000 banking and insurance applications, compared to 784,000 in the prior year.

On 8 October MoneyHero announced a strategic partnership with bolttech, a fast-growing global insurtech business, to improve the customers experience and back-end functions of its car insurance offering. bolttech is an insurance exchange that connects customers to insurance products through partner platforms, providing access to 230 insurers across 6,000 products in 35 markets. MoneyHero will integrate this exchange into its car insurance platform. Management believes the partnership will improve the user experience through an end-to-end solution within its car insurance offering, from comparison through to purchase and issuance through a fully integrated platform. This should help to drive improved conversion and retention rates, key drivers for the insurance business as it scales.

With the publication of the results, we have brought down our FY24 adjusted EBITDA expectations, owing to the larger than previously anticipated loss in Q224. Our revenue estimates are broadly unchanged as we continue to expect MoneyHero’s full-year results to be H2 weighted, as the company typically sees a scale up in budget spend from providers in the second half of its financial year.

The H124 adjusted EBITDA loss of $15.8m at a margin of negative 36.8% was higher than we had anticipated, due to elevated investment in advertising to grow brand awareness and in improvements to technology and user experience. Advertising and marketing costs were $6.6m in Q224 or 32% of revenue (Q124: $6.1m, 28% of revenue; Q223: $3.9m, 24% of revenue), while technology costs were raised at $2.2m or 11% of revenue (Q124: $1.9m, 8% of revenue; Q223: $1.7m, 10% of revenue). Consequently, we have lowered our adjusted EBITDA expectations in FY24, FY25 and FY26. Management expects MoneyHero to be profitable at the adjusted EBITDA level on a rolling monthly basis within Q424. We would therefore expect MoneyHero to be loss-making in H224, although at an improved margin. Consequently, we now expect MoneyHero to deliver adjusted EBITDA of $20.2m (previously: $1.9m) in FY24, which reflects a margin of negative 19.4% (previously: negative 1.9%). For FY25, we anticipate MoneyHero to be profitable at the adjusted EBITDA level, from midway through Q424, although at a relatively low margin, resulting in a 2.0% adjusted EBITDA margin (previously: 4.0%) for the full year.

Although no cash flow statement is disclosed by the company, due to management’s commentary around increased investment we have nudged up capex spend in FY24 to $4.1m (previously $3.5m), before lowering it to $3.0m in FY25 (previously $4.3m) and to $2.6m in FY26 (previously $4.8m). Management now believes the company is well invested.

Having delivered a working capital outflow in FY23, MoneyHero delivered an inflow of c $5.2m in H124 based on balance sheet items. We expect this is because of better payment terms with its commercial partners. We therefore now forecast an inflow of $4.1m in FY24 (previously an outflow of $3.1m), before being broadly working capital neutral in FY25–26.

Taking these changes into account, our net cash (excluding leases) forecast reduces to $54.2m in both FY24 (previously $62.7m) and FY25 (previously $64.0m), before increasing in FY26 to $60.0m (previously $72.4m).

We have lowered our discounted cash flow (DCF)-based valuation considerably from the valuation published in our initiation report following this period of elevated investment from the company. Our 10-year DCF-based valuation uses a WACC of 12%, solely reflecting a cost of equity of 12% (blended South-East Asian risk-free rate of 4.5%, beta of 1.4 (source: LSEG Data & Analytics) and a blended South-East Asian equity risk premium of 5.5% (source: Damodaran)) due to MoneyHero’s debt-free balance sheet. We assume the company achieves our revenue estimates out to FY26 and revenue growth tapers in the mid-term to a lower average CAGR of 11% in FY27–34. We assume EBITDA margins improve to our FY26 estimate of 4.1% before averaging out to a lower mid-term EBITDA margin of 7.6% (previously 10%), as we wait to see MoneyHero deliver on its EBITDA expectations.

Our assumptions indicate a value per share of $2.86, lower than our prior valuation of $5.17 but still substantially above the current share price of $1.09. In our view, MoneyHero’s current share price does not reflect the potential revenue growth and EBITDA margin expansion, particularly with the company’s current market-leading position in all its geographies. We think investors remain cautious towards smaller-scale technology companies in the current environment and there is inherent execution risk given the early-stage nature of MoneyHero’s business. Reflecting this, MoneyHero is currently trading below its net cash position and as such has a negative enterprise value of c $10m.