Xoom Awaits Acquisition by PayPal; Operating Losses Linger

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We issued an updated research report on Xoom Corporation XOOM on Sep 29, 2015.

The company is awaiting acquisition by PayPal Holdings, Inc. PYPL. In order to survive all by itself after the separation from eBay Inc. EBAY, PayPal had entered into a definitive agreement to acquire Xoom in Jul 2015. The deal is subject to shareholders' approval and is expected to close in the fourth quarter of 2015.

Post transaction, Xoom will operate as a separate service under PayPal. This combination with PayPal should boost its shareholders' interests and also allow the company to expand under the leadership of the big brand and penetrate underserved territories.

Xoom provides fast and cost-effective money transfer and bill-payment solutions. These factors help it to retain active customers and gain new ones, which in turn boosts gross sending volume GSV. Moreover, Xoom's service-enhancement initiatives help it to increase its active customer base. The mobile reload service introduced in Jul 2015 should enhance the company's active customer base further.

Additionally, the company is expanding to new markets and strengthening its foothold in existing ones. So far in 2015, the company has expanded into China, Pakistan Vietnam, Philippines, El Salvador, Austria, Belgium, Greece, Portugal and Singapore.

Xoom is also technologically sound. Its mobile application "Xoom App" capitalizes on the increased usage of mobile among customers for making and transferring payments. In Jul 2015, the company launched a new enhancement to its mobile payment portfolio – Xoom Mobile Reload – to offer better service to its consumers. In fact, mobile devices comprised the majority of its transactions in the first half of 2015.

However, Xoom has been incurring significant operating losses. Also, increased competition and gradual decline in year-over-year percentage growth of additional customers are likely to weigh on the percentage growth of revenues in the future. This is anticipated to put margins under pressure.

Moreover, being a global entity, the company faces significant headwinds from foreign currency fluctuations. Also, litigation issues are challenging the company's financial strength. Legal hassles not only drain cash and weigh on a company's financial position, but also tarnish its goodwill and mar investor confidence.

In the last reported quarter, Xoom's loss per share compared unfavorably with both the Zacks Consensus Estimate of earnings and the year-ago income. The underperformance mainly stemmed from high expenses.

Xoom currently carries a Zacks Rank #3 (Hold). A better-ranked stock from the financial transaction services space is Visa Inc. V with a Zacks Rank #2 (Buy).

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VISA INC-A V: Free Stock Analysis Report

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PAYPAL HOLDINGS (PYPL): Free Stock Analysis Report

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