- Cuffelinks analysts Graham Hand has run the numbers on Raiz Invest, following a rough start to life as a public company for the fintech startup.
- Almost three quarters of revenue is derived from a fixed maintenance fee, indicating growth in users is of primary importance.
- Hand said Raiz’s user-base is promising, although it faces threats from new investment products such as brokerage-free ETF platforms.
Fintech startup Raiz Invest — the company behind the investing app formerly known as Acorns — listed on the ASX last month after raising $15 million prior to the float.
A short time ago, its share were down 2.25% to 87 cents — a decline of 51.6% from the June 21 listing price of $1.80.
Targeted at younger investors, the Raiz platform allows users to automatically round-up amounts on small purchases and invest the difference, creating a pool of funds which eventually grows into an investment portfolio.
Following Raiz’s rough start to life as a public company, Graham Hand from investment research company Cuffelinks has provided some useful research on Raiz’s revenue streams and growth strategy.
Here’s a look at the key numbers:
According to data released at the listing, Raiz has around $200 million in funds under management. The company generates revenue by charging fees on those amounts.
This table from Cuffelinks shows the relevant fee structure:
Importantly, 71% of Raiz’s revenue is made from the $1.25 monthly maintenance fee.
So in that sense, the key metric for the company is the size of its user-base. The more active accounts Raiz has on its platform, the more fixed revenue it can generate.
And Hand said the company has done pretty well in that area. The app has at least 160,000 active users, and in a statement to the ASX last week, Raiz said it now has more than 500,000 signups.
Here are the other sources of company revenue, according to the company’s prospectus:
- 8% from the 0.275% account fee.
- 9% from netting off the buy/sell spread on exchange traded funds.
- 12% from targeted advertising.
The last item — targeted ads — forms part of Raiz’s strategy to generate revenue streams by leveraging its 500,000 strong database.
Raiz allows users to join the platform with a minimum investment of just $5. But for a smaller pool of funds — say $250 — the maintenance fee amounts to a relatively hefty 6%. So Hand said for someone who doesn’t consistently top up their funds, the app probably isn’t worthwhile.
The company also launched a superannuation product yesterday, which will charge an investment fee of around $425 (0.85%) on balances of $50,000.
And CEO George Lucas told Business Insider last month that the company is embarking on an international expansion strategy, targeting Millenial markets in South-East Asia.
Raiz offers a portfolio allocation strategy based on exposure to exchange traded funds (ETFs). Users can weight their portfolios accordingly, depending on their risk profile.
This table from the company prospectus shows what the aggressive portfolio looks like:
So in terms of domestic / international holdings, the aggressive portfolio is still heavily weighted to the ASX200. That means user funds will largely be allocated towards the big banks and mining stocks which dominate the index.
Hand said the “conservative” portfolio is comprised largely of government bonds (30%), corporate bonds (23%) and cash (24.5%).
“That’s 77.5% into low-yielding fixed interest, which might not be an appropriate portfolio for the young investors targeted by the marketing,” he said.
Hand also addressed the question of what the company is actually worth.
But he said ascribing a value to an early-stage fintech is more or less an impossible exercise. Given Raiz’s choice to list, the public market is now performing that function. And the early results haven’t been pretty:
Hand said Raiz’s initial $15 million capital raising was heavily oversubscribed — a sign that some investors were looking to make a “stag profit” by selling the shares after the listing (a strategy which hasn’t worked out well so far.
Despite the company’s rocky start as a listed companies, Hand was completely dismissive of Raiz as an investment.
Although the marketplace for investing apps has low barriers to entry, “it’s not easy to create the market profile that Acorns and now Raiz has achieved”.
However, “on the negative side, there are many competitive threats — such as ETF providers starting brokerage-free platforms as they have in the US — making direct access to ETFs a compelling alternative”, Hand said.
In a statement to the ASX last week, Raiz said it will shortly provide a trading update for the June quarter with information on growth, user engagement and funds under management.