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From Acorns, RAIZ has the potential to grow strong performance roots
In common with many micro-cap stocks on the ASX, Raiz Invest (formerly known as Acorns Australia), has experienced a significant decline in its stock price over recent years, leading to it languishing in relative obscurity in the market.
But the micro-investing and fintech platform, which has operations in Australia and Southeast Asia, is doing a lot of things right, and looks to have the potential to stage a remarkable turnaround and offer substantial returns to savvy investors.
Since launching in 2016 Raiz (ASX: RZI) has achieved solid growth, amassing more than 3.4 million downloads, 3,412,000 sign-ups and more than 685,000 active monthly customers. The platform has $1.14 billion in funds under management (FUM) as at 31 May 2023.
The sharp increase in interest rates triggered in the final quarter of 2021 blew a cold wind through the world of stocks that were not profitable. Suddenly, investors withdrew the patience and leniency with which they had treated businesses with future growth potential, no matter how promising.
In response, Raiz has taken measured steps to stabilize its financial performance by reducing expenses and improving cash flow management, resulting in two consecutive quarters of positive cash flow for the core Australian operations.
This demonstrates the company’s ability to achieve profitability, and indicates a positive trend in its financial outlook.
A change in leadership has brought a fresh perspective to Raiz, with founder George Lucas stepping down in September 2022 and Brendan Malone assuming the role of CEO. Malone knows and understands the business intimately, having joined Acorns Australia as its first employee in 2015, bringing with him more than 20 years’ experience in financial institutions, including The Royal Bank of Scotland (RBS) and ABN AMRO (AMRO).
This strategic move has strengthened investor confidence in the capable management team leading Raiz’s turnaround, and signals a renewed focus on expanding the superannuation offering to Australian members.
Under the new management team Raiz has successfully implemented a refreshed strategy, repositioned its international business model and refocused the Australian business. By actively streamlining operations and reducing unnecessary expenses, Raiz has improved its financial position and enhanced overall operational efficiency. This disciplined approach sets the stage for potential growth opportunities.
Raiz’s growing user base and increasing FUM show its ability to both attract and retain customers. The platform’s user-friendly accessibility and automatic investing features resonate strongly with millennials and younger investors. To this point, its relatively high fees – especially for low balance account holders – have not precluded the platform from gaining a solid fan-base.
Improved cash flow and reduced expenses have fortified Raiz’s cash position and enabled better debt management. This financial stability gives the company flexibility to pursue growth opportunities.
Raiz’s entry into the superannuation market presents an opportunity for increased revenue potential. By migrating its user base to its superannuation offering, Raiz can earn a margin on investment management fees.
Raiz has the potential to diversify its revenue streams beyond micro-investing by expanding its superannuation offering and leveraging technological advancements such as artificial intelligence (AI) and machine learning. These initiatives can further enhance the platform and attract a wider audience, establishing a foundation for long-term sustainable growth.
As ever, market forces will have a significant bearing on the stock’s fortunes. Sustained inflation and swollen interest rates could further curb the stock performance of Raiz, especially in the short to medium term.
Yet Raiz presents all the key features of a potential turnaround. With a growing user base, strong cash position ($9.7 million in cash and cash equivalents as at 31 March 2023), streamlined operations, and a clear management strategy, the company could see long-term sustainable growth.
*Note – This article reflects the author’s opinion and does not constitute financial advice.
