"The technological threat exists already."
Certainly Paypal has been around for a while. But that is not to say that WU isn't gaining market share. The company's share of the global remittance market has risen from roughly 10% in 2004 to about 17%-18% in 2006.
With the alliances WU is creating, they will most certainly relinquish a percentage of their profit margins. But I believe that they address a expanding world trend. Below is a quote from a recent JMP research report.
"The global remittance business is still the beneficiary of one of the strongest secular trends today, namely the fluidity of the world's population. According to studies conducted by the United Nations, there were 191 million people in 2005 living in countries other than their country of origin. This migrant population is forecast to reach more than 280 million by 2050, and the growth in migration fuels a steady and consistent increase in global remittances.
Major emigrant countries, such as China, India, Mexico and the Philippines, are contributing to the growth of unbanked and underbanked consumers in the developed economies of the U.S. and Western Europe, the primary immigrant locations."
Interesting that you mentioned Walmart. WU recently signed an agreement with Walmart of Canada. MGI has an agreement with Walmart in the USA. I believe that Walmart deciding to form alliances with the two largest money transfer agents rather do it on their own indicates there is resilience to WU's business model.
biz.yahoo.com
I think cell phones is the primary techno-threat, but my previous post addressed my view of that issue. As far as Paypal is concerned, I think that is out of the range of the typical WU customer. Below is a quote from an interview with Shawn Kravetz, founder and president, Esplanade Capital who has had a fairly good track record.
"They are the leader in global money transfer, providing people around the world with easy and trustworthy ways to send money. They have 300,000 agent locations in 200 countries. It provides an absolutely vital service. We think it is underappreciated because Wall Street has an Internet view of the world, which is, why not use PayPal and credit cards to send money? But a lot of Western Union customers don't have access to e-mail or a computer or a bank, for that matter. When they were preparing to be spun out by First Data, we were astonished at their returns on capital, their cash-flow generation, their 30% profit margins. Historically, this has been a very solid and a low-double-digit-growth business. Nice and boring and immensely profitable. But because of the costs of becoming a public company and some short-term disruption in the Mexican market, an important market for them, and some headline risk on immigration reform, we think the stock now presents an opportunity." |
