It’s not easy to operate in a business where competition is fierce and pricing power is nonexistent. Just ask Moneygram International (MGI), whose shares are in freefall this morning after it was downgraded by Piper Jaffray.
Getty Images Why did Piper Jaffray’s Michael Grondahl and Dain Haukos downgrade Moneygram to Neutral from Overweight? Let them count the ways:
We are downgrading [Moneygram] as we believe it will struggle to perform in an increasingly competitive marketplace where price cuts and compliance requirements could suppress revenues and increase expenses. As such, margins remain under pressure. Recall, [Moneygram's] biggest competitor, Western Union (WU), has cut its prices. Next, during the September quarter [Moneygram] saw its commission expense increase [1.7 percentage points year-over-year] to 47% of total revenues as it had to pay more to retain/acquire agents. Additionally, [Moneygram's] compensation and benefits expense increased by 20% (~$11.4M) Y/Y partially as a result of increased headcount required to meet increased regulatory requirements. Lastly, we worry about a potential [Wal-Mart (WMT)] white label offering. We note [Wal-Mart] represented 27%
of MGI’s September quarter revenues.
Ouch.
Shares of Moneygram have gained 5.5% to $18.65 today at 1:54 p.m., while Western Union has gained 2.6% to $17.51. Wal-Mart has risen 0.4% to $78.52.
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