How Remitly Buys $6 for $1

Deconstructing the LTV/CAC magic that powers Remitly's growth and makes the market deeply misunderstand its value.

Wall Street sees a company burning nearly $300 million a year on marketing and scratches its head. I see one of the most profitable growth engines in fintech. It's a model so compelling that after completing this research, I made it a top 3 position.

That company is Remitly, and it's systematically dismantling legacy giants like Western Union by turning $1 into $6. Here's how.

Remitly provides easy and fast remittances for millions across the world. As of 2024 they are transferring over $43B annually and growing faster than any other player. Despite the hyper growth, they’ve only grabbed 3% market share.

They’ve grown thanks to:

• Laser Customer Focus

• Aggressive Profitable Marketing

• Economies of Scale

Today I want to focus on the Marketing engine that underpins much of Remitly’s prodigious growth. I’ll follow up with more in future posts.

The $300 Million Growth Machine

One way to beat the competition is to outspend them in customer acquisition. But this isn’t as easy as it sounds. In order to be able to outspend competition you need to have both insight and confidence into the lifetime value (LTV) of your customers.

In other words, If you’re able to retain your customer longer, and they spend more with you, you can pay more to acquire them than your competitors.

Remitly spends a ton on marketing. They actually spend more than any player in the market (closer to $300M TTM) as you can see below. For context the next largest marketer in the space is Western Union, which does 7X the total send volume of Remitly.

Now you might be saying, Okay, so they’re outspending everyone, isn’t that just a massive waste of shareholder money?

Not even close.

For every $1 Remitly spends on marketing, it generates $6 in gross profit from that customer over the next 5 years.

This is a outstanding ROI in the space. So much so that most competitors don’t report this number.

LTV is defined conservatively as Revenue - Transaction Expense over 5 years, but CEO, Matt has stated, “most are well beyond five years.”

CAC here is defined as direct marketing expenses. Of the ~$300M Remtily spent on marketing in the last 12 months. I assume 85% of this is direct marketing spend. The rest would go to staff, creative etc.

How Marketing Spend Translates to Billions in Value

Below I’ve tabulated the the last 5 full years of Remitly’s marketing spend and its estimated impact on LTV acquired based on the stated 6X LTV/CAC. Over the last 5 years the company has added $4.6B in LTV through $905M in marketing spend.

I’ve then taken and averaged the last 2 years of annualized LTV to see how closely it correlates w/ YoY absolute Gross Profit. This number is usually 5-10% higher than Remitly’s YoY GP increase.

We should expect Implied Annual GP Growth to be generally lower than Absolute GP growth for a few reasons:

1. Churn in prior customer cohorts

2. Implied LTV is forward looking and derived from Marketing spend including the last day of the FY (I’ve tried to adjust for this using a blended 2yr Average but skew muddies this)

3. LTV likely implies future transaction growth per customer which is ignored here

Does The Math Hold Up? (Spoiler: It Does)

Let’s do a quick sanity check on our math here. In 2024 LTV grew by 1.12B. 1/5th of prior 2yr avg would be $232M. This compares to a $217M rise in gross profit for the year. Very close to what we’d expect assuming churn from prior cohorts is low and that revenue transacted grows over time. Pass.

Retenion Rate

The other valuable item to note above is the Retention Efficiency column. Which shows that Remitly is retaining about 93% of prior years revenue (though this is a very crude way of calculating this). This is a strong metric and speaks to the longevity of the customer beyond the 5 years LTV takes into account.

This number also compares well to Remitly’s statement that “90%+ of revenues come from repeat customers.”

Lastly you can see why Remitly has chosen to forgo profits. The company has the ability to pay $1 today for $6 in gross profit tomorrow -and they know it’s more than that given their net retention rate.

On top of that they’ve already started to realize economies to scale in costs. Why wouldn’t Remitly just run at breakeven until they reach saturation in marketing spend?

That’s exactly what they’re doing, with some nominal profits to show market participants they can profit, if they want to.

Looking Forward

Using the above we also have a forward looking model using marketing spend as the driver.

Based on the table above we should expect 2025E Gross Profit to grow by $247M this year using the guided ~$300M in marketing spend and a blended rate of prior years LTV growth.

Analyst Comparison

Currently Analysts Estimate a YoY gain of $195 to $210M in GP vs my estimate of $247M. At the mid-point that would be a 21% beat at the end of the year on GP.

The Hidden Profit Machine: What if Remitly Stopped Growing?

Now that we understand Remitly’s growth engine, we can also see just how much control Remitly has over its PnL.

Specifically, if we assume the crude trailing 5 yr Net Retention Rate above as a constant at 93% we can calculate what Remitly could be earning if they chose not to grow.

So in order to stay at the existing $871M in GP, Remitly would need to make up 7% of the GP per annum lost to churn. In other words they’d have to get $65M in new gross profit each year.

Now they’ve mentioned their LTV/CAC differs by channel from 4X to 8X+. If they focused on the highest earning portions of this Remitly could feasibly do this with $8.2M in direct marketing spend or about $10M total.

This means the $290M Remitly spends on marketing is essentially discretionary growth capital.

If we add that back to their reported pre-tax earnings and apply a 25% tax rate, we find Remitly's true underlying earnings power is closer to $250 million.

For a business trading at an ex-cash market cap of ~$2.95B, that’s a multiple of just 11.8x. For a dominant fintech player growing at 30%+, this is absurdly cheap.

The market sees Remitly's marketing spend as a simple 'cost,' like paying the electricity bill. This is a mistake. It should be seen as growth capital expenditure (capex), no different than Amazon building a new fulfillment center. For Remitly, the 'assets' they are building are new, loyal, profitable customers.

Furthermore, my anlysis assumes constant SG&A and R&D costs which is wildly conservative in such a scenario. R&D is another $290M by itself.

Remitly is cheap based on its earnings potential, TODAY.

It gets stupidly cheap if we look out a couple of years.

To recap, we have a business that:

1. Turns $1 of marketing into $6 of future profit.

2. Retains over 90% of its revenue from prior years.

3. Hides ~$250M in annual earnings power behind discretionary growth spending.

The market sees a cash-burning tech company. We see a coiled spring, ready to dominate a multi-trillion dollar market. This combination of a powerful growth engine and a misunderstood earnings profile is why we are long Remitly and confident in its future.

This post only covers the "how." In Part 2, I'll break down the specific catalysts that could force the market to re-evaluate this story in the next 12 months.

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