June 21, 2022 - 12:31pm EST by
2022 2023
Price: 20.00 EPS 1.6 2
Shares Out. (in M): 38 P/E 12.5 10
Market Cap (in $M): 754 P/FCF 0 0
Net Debt (in $M): -75 EBIT 0 0
TEV (in $M): 679 TEV/EBIT 0 0

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IMXI requires us to examine two mental models (frameworks): myopic circles and David vs. Goliath. 


Myopic circles


I don’t smoke. This was not always the case with me. I smoked in my teens. I quit when I was 21. I was one of the first people in my circle of friends to quit smoking, then gradually all my friends quit smoking, too. 


Today I don’t have a single close friend who smokes. I didn’t look for this outcome intentionally; I didn’t stop being friends with smokers. Nor do I choose friends based on their (harmless, at least to me) vices. So this was not a conscious or even a subconscious decision. Very simply, people in my social demographic circles have a set of values, and a healthy lifestyle is one of them. It’s very hard to have a healthy lifestyle and smoke. 


Humans are tribal, and we try to conform to the values and behavior of our tribe. At some point in the late 1990s or early 2000s smoking stopped being cool and became uncool in my tribe. (For me, a girl I was dating was the impetus for my quitting). 


On the other hand, I have a relative who smokes. This is where it gets interesting. He has a few dozen friends who smoke. His friends know a lot of people who smoke. The overlap between his circles of friends and acquaintances and mine is very small (near zero).


Why is this important? In my daily life I encounter very few people who smoke, and thus it is easy (if I am not careful) to form a belief that nobody smokes. I was shocked to discover that 35 million Americans – 14% of the adult population – still smoke. The numbers are much greater in Asia and Eastern Europe. 


Another example: vaccinations. If you are vaccinated, then it’s likely that most of the people you know are vaccinated. Now, if you have a friend or a relative who is not vaccinated (other than for a unique medical reason), most likely that person knows a lot more unvaccinated people than you do. And his/her circle of unvaccinated friends and your circle of friends have little overlap. 


This myopic circle framework applies to many parts of our lives. Here are more examples: What we watch on TV is influenced by our values and our willingness to share our experience with others; how we watch TV – over the internet or over cable; our political beliefs – we tend to surround ourselves with people we agree with; our shopping habits (our preferences for in store or online); even the type of cars we drive (electric vs ICE). 


When we live in our micro circle we forget about the existence of other circles. If we are not careful, the lens through which we look at the world may get strongly tinted with our perspective and turn myopic. 


You’d think that as you venture out on the world wide web this would change. It does a little, but not much. Maybe a guy you went to third grade with, who is now your Facebook “friend,” has different political views from yours. You argue with him over the occupant of the White House and then de-friend or unfollow him. But mainly, your social networks will feed you content that agrees with your biases. 


For an analyst (and, I’d argue, for a human being, too) myopic vision is dangerous. It leads to missing both opportunities and potential threats.


Let’s look at another mental model. 


A book that has had a profound impact on me not just as an investor but as a businessperson is Malcom Gladwell’s David and Goliath. It reexamines one of the oldest biblical stories. Three thousand years ago in the Elah Valley of the Judean Mountains, an army of Philistines and an army of Israelites, led by King Saul, faced each other. 


The armies were stalemated. To attack, either army would have to go down into the valley and then climb up the enemy’s ridge. The Philistines ran out of patience first and sent their greatest warrior, Goliath, to resolve the deadlock in one-on-one combat. Goliath was a 6-foot 9-inch giant, protected from head to toe by body armor and a bronze helmet. 


He yelled, “Choose you a man and let him come down to me! If he prevails in battle against me and strike me down, we shall be slaves to you. But if I prevail and strike him down, you will be slaves to us and serve us.”


There were no volunteers in the Israelites’ camp. Who could win a fight against this giant? Then an ordinary-looking shepherd boy stepped forward. His name was David. 


To me, David vs. Goliath was always just an inspirational story about a young boy defeating an evil giant. Or as Gladwell puts it, for most people David vs. Goliath is a story of “when ordinary people confront giants.”


But Gladwell presents the story in a very different light. When David goes to face Goliath, King Saul offers him his sword. David refuses. Instead, he picks up a few polished stones and throws them in his pouch. Gladwell explains that, as a shepherd protecting his flock, David was a skilled rock slinger. 


When Goliath saw David, he yelled something along the lines of “Come here; I’ll have a piece of you!” Instead, David kept his distance, then put a stone in the leather pouch of his sling, fired it at Goliath’s exposed forehead, and struck him down. 


Had David taken Saul’s sword and gone to fight one-on-one, he wouldn’t have had a chance. But where everyone saw strength in Goliath’s physical might, David saw weakness. David was a craftsman rock slinger; he could knock a bird down in mid-flight with a stone – Goliath was a sitting duck. 


Suddenly we see a very different story. Goliath’s size, physical strength and armor are only competitive advantages if his opponent chooses to fight him in a conventional way, on Goliath’s terms. But his strength can quickly be turned into serious weakness, as Goliath was immobile, slow and had no defense against a skillful rock slinger. In other words, Goliath brought a sword to a gun fight. Or in financial parlance, David turned Goliath’s assets into liabilities. 


The lesson of this story is to always look for asymmetry. When you face a formidable competitor, don’t settle for symmetrical one-on-one combat; understand the competitor’s strengths and see if you can turn them into weaknesses by changing the domain of the fight.




Now that we are armed with two mental models, let’s tackle our thesis on International Money Express (IMXI). 


IMXI is a money-transfer business (think Western Union). Most people reading this have probably not used Western Union or a similar transfer service in a long time. We mostly wire money between financial institutions or Venmo money to our friends. You probably lead a mostly cashless lifestyle and pay for everything with a credit or a debit card. 


Let me take you out of your everyday circle and describe to you a different one. 


There are millions of people in the US from Latin America; many of them are here legally, some are not. They work on farms, build houses, mow lawns – do jobs that we don’t want to do. Every Friday, after they collect their pay, they’ll go to a store, be it Walmart or a local bodega, cash their check, and send a large chunk of it to their family back home (it will cost them about $12.50 to do so). Their relatives go to a corresponding agent on the receiving side (usually a bank or a retailer), show ID, and collect the money in their local currency. 


Most Americans (95%) have a bank account, but Latin America is seriously underbanked – only 35% of Mexicans have a bank account. Though many of us in the US don’t use it most of the time, cash as a payment method is alive and well.


Most of us don’t even know that this market exists. But it does. Remittances to Latin America and the Caribbean topped $135 billion and grew more than 20% in 2021. Despite the digitization of finance, the cross-border cash transfer market is alive and well.


IMXI is the David of cash remittance where Western Union is the Goliath. I don’t want to paint WU as a villain; it is not. We used to own Western Union about fifteen years ago when it was part of First Data Corp. WU has the largest money transfer network in the world. 


IMXI cannot compete with WU on the breadth of its network. But it doesn’t need to.


Using WU you can send money from Acapulco, Mexico to Madras, India. Though it is possible, we discovered that very few people actually do it. Most transactions happen in corridors. Usually, people from one country immigrate to another that offers better job opportunities and then send money to their relatives in the home country. There might be an Acapulco-Madras corridor, but I doubt it. 


I used to think that profitability of the money transfer business depended on the size of a company’s network. I was wrong. It is completely dependent on the sum of your successes in serving individual corridors. Western Union is involved in hundreds if not thousands of corridors, most of which are not particularly profitable. 


IMXI chose to compete with WU and a slew of other competitors, many of whom are apparently more tech-savvy, on its own terms. It focuses the vast majority of its activity on two corridors: US to Mexico and US to Guatemala. In fact, the US to Mexico corridor is the largest single remittance corridor in the world. 


IMXI is run by Bob Lisey. Bob was at Vigo, which used to be a large player in the US to Mexico corridor. About 10 years Vigo was sold to WU. WU proceeded to run Vigo into the ground. Bob has been running IMXI for about 10 years, and during his tenure IMXI’s revenues have grown more than 20% a year. IMXI is consistently taking market share from WU and others in the US to Mexico and US to Guatemala corridors. It has similar market shares there now to WU’s. IMXI achieved this success through focus and differentiated strategy. 


WU is large and must focus on many corridors; IMXI focuses substantially on just two. WU uses big box retailers (like Walmart) to service its US to Mexico corridor clients. IMXI has a sales force that recruits small convenience stores to use its services. WU is usually not in those stores, and this is part of IMXI’s success. By focusing on small, local bodegas in immigrant neighborhoods, IMXI has inserted itself directly into areas heavily trafficked by immigrant communities. Most migrants in the US don’t shop at Walmart, they shop at local stores that have similar products, look, and feel to those back home. IMXI understands this and builds on the real networks that already exist between immigrant populations in the US and Mexico/Guatemala. 


IMXI provides a superior product and service, despite costing about the same as WU. They have a dedicated call center manned by Spanish speakers. The phone is picked up in 4 seconds. It provides check cashing, which WU doesn’t. IMXI has better equipment and software, empowering its agents to run a high visibility, efficient business. It takes just seconds to complete a transaction, while it takes minutes on competing networks. This is a huge deal for store owners who have lines going out the door every Friday night. Using IMXI becomes an easy decision. And IMXI is not standing still; it is going to be introducing additional products in the future, including (yes) digital transactions. But they won’t be taking their eye off the ball.  


IMXI recently announced the acquisition of La Nacional, which will bring IMXI’s market share in the top 5 US to Latin America corridors (Dominican Republic, Mexico, Guatemala, El Salvador, Honduras) to north of 20%. These corridors represent 83% of remittances to the region from the US, and IMXI will deliver one in five of such transactions. The acquisition will also bring them into the European market in a cursory, as yet immaterial way. 


The company has no net debt as of March 31, 2022, and has been buying back modest amounts of stock at these levels. 


IMXI revenues grew 21% year on year in the 1st quarter 2022. We are not counting on this pace of growth to continue – if revenue growth falls from 20% in 2022 to 10% in four years, it could earn at least $2.50 per share in 2025 (more if revenue growth stays high). IMXI is a $20 stock as of this writing that earned $1.20 in 2021 and we believe can earn $1.60 in 2022. We are paying 12.5x this year’s earnings.. At 15 to 17 times earnings, we get a fair value for IMXI of about $40–$60 four years out. 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Revenue growth

EPS growth

Monetization of additional Latam remittance corridors

Growth in digital

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