The Oregon-based tech firm, which operates a cloud-based expense management software platform, will seek to sell its 9.7 million shares for between $23 and $25. Achieving the upper limit here would value the company at around $2bn.
The company will be joining the NASDAQ with the ticker EXFY. Expensify’s IPO is due to take place on 10 November. Listed bookrunners of the IPO are JP Morgan, Citigroup, BofA Securities, Piper Sandler, JMP Securities and Loop Capital Markets.
What is Expensify?
Expensify is a cloud-based expense management platform. The company was founded in 2008 and has added more than 10 million users over its lifetime. For the quarter ended June 30, 2021, an average of 639,000 paid members across 53,000 companies and over 200 countries and territories used the software.
The company has US-based offices in San Francisco, Portland and Michigan, as well as international offices in London and Melbourne. At least 130 employees work for Expensify at these offices.
David Barrett is the founder and CEO of the company. Barrett has been involved in programming since the age of six and worked on the development of Red Swoosh before starting his own project.
How does Expensify make money?
The expense management software company makes 95% of its revenue through monthly recurring subscription payments. Subscription plans are flexible, with higher level customers gaining access to additional features. These include bi-directional accounting sync and invoicing features.
The company also launched the Expensify Card in early 2020, following a trial the previous year. This is an additional feature offered as part of the company’s subscription service.
However, Expensify has noted that the launch of the card has been negatively impacted by the effects of the COVID pandemic. This led to a decline in volume of businesses’ expenses and potential customers' reluctance to adopt a new card.
In the six-month period ended 30 June 2021, Expensify achieved revenue of $65.0m. This constituted a 60.1% increase on the same period in 2020, when the company returned revenue of $40.6m. Net income and EBITDA also increased during the period. The former rose by 320% to $14.7m, while the latter increased by 148.9% to $22.9m.
Impressively, the company has managed to achieve much of its growth by using word-of-mouth adoption. Expensify said this allows them to not rely on traditional outbound marketing efforts. This is reflected in the company’s marketing spend, which has generally decreased as a percentage of total revenue.
For example, they amounted to 33.8% of revenue in 2019, but just 10.7% in the first half of 2021. If the company can manage to continue to expand with such low costs, that could give it a cutting edge over its competition.
When considering growth, Expensify points to the fact that small and medium businesses make up more than 99% of total businesses and around 70% of employment in OECD countries. Most of these companies still use manual processes for back-office functions like managing expenses.
Expensify’s plan is to provide modern solutions for these back-office functions as businesses inevitably begin looking for more intuitive processes.
Expensify estimated its total addressable market was approximately $16.0bn in the United States and $21.5bn in its core geographies in 2020. These core geographies are the United States, United Kingdom, Canada and Australia.
The company said it also wants to focus on international expansion, as it believes there is a large, untapped opportunity outside its core geographies.
However, the company does face challenges. Expensify has noted that its success depends on the economic health of its current and prospective customers. Expenses generally entail things like food, travel and some entertainment. If businesses cannot afford these expenses or cannot access them due to COVID restrictions, expenses software starts to look redundant.
The company itself has warned that declines in business spending, declines in the number of paid monthly members and fewer transactions going through the platform may result in lower revenues.
The company also noted that its competitors, many of whom are larger and more established, might respond to an economic downturn by lowering their prices and increase their market share at the expense of lower margins.
These many competitors include the likes of QuickBooks and Rydoo. The former was developed and released by financial software specialist Intuit(NASDAQ:INTU), while Marlin Equity Partners snapped up a majority stake in the latter back in September.
Should you invest in Expensify?
When examining whether Expensify is a sound investment, there is one key extra factor to consider. I mentioned the effects of COVID as a possible risk for Expensify, but the pandemic could have actually helped the company’s prospects too.
With the workplace shift towards home-working, many businesses have been adopting new software solutions. Dealing with paperwork is just so much more difficult when it has to be mailed from place to place, especially when the alternative is simply digitising the process.
The popularity of solutions like Expensify’s appears to be on the rise. Couple this with more opportunities for business travel opening up as we emerge from the pandemic and Expensify could have stumbled onto a winning formula.
As such, the company seems like an interesting proposition, though it could be the case that its competitors are better placed to take advantage of any opportunity.
The company’s solid financials, word of mouth marketing and focus on small to medium sized businesses might help it to stand apart from the crowd. However, Expensify remains a risky investment due to competition and changes in working life.