Xoom Corp: A Buying Opportunity despite Being a Victim of Fraud

Stifel analysts believed that the news that Xoom Corp was recently a victim of fraud presented a buying opportunity due to several factors. The company revealed yesterday that the problem would result to one-time write down of $30.8 million in its financial results for the fourth quarter.

The stock price of the company declined 12% after-hours on light volume yesterday. The shares of Xoom Corp are trading $16.57 a piece, down by nearly 2% at the time of this writing around 2:29 in the afternoon in New York.

Charlie Munger: Invert And Use “Disconfirming Evidence”

Charlie MungerCharlie Munger is considered to be one of the best investors and thinkers alive today. His thoughts and statements on investment research, investment psychology, and general rational behavior are often incredibly insightful. Anyone can learn something from this billionaire investor and philosopher. Q2 2020 hedge fund letters, conferences and more If you’re looking for value Read More

Reasons why analysts positive on Xoom

Stifel analysts Christopher Brendler and John Davis  acknowledged the fact the that issue raises questions regarding the internal controls of Xoom Corp. However, they explained that they saw a buying opportunity because of several factors.

According to them, the primary factor was its financial results for the fourth quarter. Xoom Corp provided revenue guidance in the range of $43.1 million to $43.6 million, which is higher than the consensus estimate of $41.7 million.

Xoom Corp also estimated that its new customers increased by 5% compared with a 22% decline last quarter, and its attrition dropped 5.2% versus 5.9%.

Brendler and Davis said, “With the strength in revenues also implying an improving yield, our 2015/2016 estimates rise slightly despite new customer added slightly below ours, above consensus forecast (we were +8%, Street closer to +0%).”

The analysts also expressed optimism that the breach on Xoom Corp will be proven to be an isolated case although the breach raises questions about the company’s core-fraud detection capabilities.

Brendler and Davis noted the statement of the management of the company that its systems are completely separate, and “no way should raise questions about its impressive risk management capabilities in its core Instant ACH product.”

Furthermore, the analysts were hoping that Xoom Corp would partially recover its losses because it was insured, but they are still uncertain about the recovery timeline.

Analysts’ comment on CFO resignation

Yesterday, Xoom Corp also announced the resignation of its CFO Matt Hobbard effective immediately. Ryno Blinaut, the former CFO of the company assumed the position in an interim basis.

The analysts commented it’s nice to have Mr. Bignaut return as interim CFO of Xoom Corp, but they are hoping for the company to a strong external candidate to permanently takeover the position.