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Western Union (WU) Down 14.8% Year to Date: How Will 2021 Fare?
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World’s leading remittance company The Western Union Co. (WU - Free Report) took a beating this year from the coronavirus pandemic, which dried up global remittance volumes. Revenues in the first nine months of this year declined 10.6% year over year as both its segments, namely Consumer to Consumer and Business Solutions took a hit.
Beginning March 2020 and continuing into the second and third quarters of this year, the company’s C2C segment experienced a decrease in transaction volumes from retail locations and a ramp-down foreign exchange and payment services activity, thus affecting revenues in these periods. However, strong revenue contribution from westernunion.com and other digital transactions cushioned the company to some extent..
The Business Solutions segment, which represents approximately 7% of the company’s top line, is affected by COVID-borne macro headwinds due to its exposure to small-to-medium-sized enterprises, travel and tourism and education. SMEs continue to suffer due to a decline in overall demand from consumers as things will take time to look up.
For 2020, GAAP revenues for the full year are expected to be down by high-single digits due to the impact of COVID-19 and the 2019 divestitures of Speedpay and Paymap. On an adjusted constant currency basis, which excludes the impact of the divestitures and Argentina inflation, revenues are expected to be down by mid-single digits.
The company is also facing stiff competition from a host of fintech players who thronged at the remittance market in recent years. This might compel the company to reduce prices to attract customers. The cutback in prices may not suffice at this time when transaction volume growth is doubtful.
The World Bank predicts remittance flows to shrink 14% by 2021. Remittance flows to low and middle-income countries (LMICs) are projected to fall 7% to $508 billion in 2020 followed by a further decline of 7.5% to $470 billion in 2021.
These factors are likely to keep the stock under pressure in the coming months. Nevertheless, the company’s intense focus on growing its digital platform, which has been generating increased revenues and higher transactions for a while now, is a positive for the company.
Also facing top-line constraints, the company is steadily focusing on lean management via its program called WU WayU Way. This program is expected to deliver at least $50 million in annual productivity savings this year (2020) as well as meet the three-year target of $150 million.
Though the vaccine for coronavirus is out and there is an overall optimism but it will still take time for the world economy and businesses to pick up. Until the situation recovers fully, the company will continue to reel under pressure.
Notably, so far this year, the stock has lost 14.8% against the industry’s growth of 5.6%.
Other stocks in the same space including PayPal Holdings, Inc. (PYPL - Free Report) , Square, Inc. (SQ - Free Report) and MoneyGram International Inc. have soared 97.9%, 246.2% and 171%, respectively, so far this year.
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Western Union (WU) Down 14.8% Year to Date: How Will 2021 Fare?
World’s leading remittance company The Western Union Co. (WU - Free Report) took a beating this year from the coronavirus pandemic, which dried up global remittance volumes. Revenues in the first nine months of this year declined 10.6% year over year as both its segments, namely Consumer to Consumer and Business Solutions took a hit.
Beginning March 2020 and continuing into the second and third quarters of this year, the company’s C2C segment experienced a decrease in transaction volumes from retail locations and a ramp-down foreign exchange and payment services activity, thus affecting revenues in these periods. However, strong revenue contribution from westernunion.com and other digital transactions cushioned the company to some extent..
The Business Solutions segment, which represents approximately 7% of the company’s top line, is affected by COVID-borne macro headwinds due to its exposure to small-to-medium-sized enterprises, travel and tourism and education. SMEs continue to suffer due to a decline in overall demand from consumers as things will take time to look up.
For 2020, GAAP revenues for the full year are expected to be down by high-single digits due to the impact of COVID-19 and the 2019 divestitures of Speedpay and Paymap. On an adjusted constant currency basis, which excludes the impact of the divestitures and Argentina inflation, revenues are expected to be down by mid-single digits.
The company is also facing stiff competition from a host of fintech players who thronged at the remittance market in recent years. This might compel the company to reduce prices to attract customers. The cutback in prices may not suffice at this time when transaction volume growth is doubtful.
The World Bank predicts remittance flows to shrink 14% by 2021. Remittance flows to low and middle-income countries (LMICs) are projected to fall 7% to $508 billion in 2020 followed by a further decline of 7.5% to $470 billion in 2021.
These factors are likely to keep the stock under pressure in the coming months. Nevertheless, the company’s intense focus on growing its digital platform, which has been generating increased revenues and higher transactions for a while now, is a positive for the company.
Also facing top-line constraints, the company is steadily focusing on lean management via its program called WU WayU Way. This program is expected to deliver at least $50 million in annual productivity savings this year (2020) as well as meet the three-year target of $150 million.
Though the vaccine for coronavirus is out and there is an overall optimism but it will still take time for the world economy and businesses to pick up. Until the situation recovers fully, the company will continue to reel under pressure.
Notably, so far this year, the stock has lost 14.8% against the industry’s growth of 5.6%.
Other stocks in the same space including PayPal Holdings, Inc. (PYPL - Free Report) , Square, Inc. (SQ - Free Report) and MoneyGram International Inc. have soared 97.9%, 246.2% and 171%, respectively, so far this year.
Western Union carries a Zacks Rank #3 (Hold), presently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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