Expensify Stock: Making expense reports even better

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The stench of American politics has worsened considerably lately in Portland, Oregon, a sleazy city that makes Third World favelas look tidy and structured. Walk through the city’s main thoroughfares and you’ll quickly notice all the crudely erected structures with trash spilling out into the streets. Instead of tackling this gaping plague, city management seems to be ignoring it. Keep Portland weird Indeed.

The problem exists because the American political party controlling the city is doing an ostrich maneuver while the other American political party is rubbing the problem in their face. Sometimes extremists from both parties clash in the streets, some even exchanging bullets. Despite the problems Portland faces, talented people strive to get things done. One of the success stories of the City of Roses is Expensify, a company that helps other businesses manage expense reports.

The problem of expense reports

The way businesses spend money on travel is inefficient and unnecessary, to say the least. In most businesses, travel planning is done through third-party service providers such as American Express, who have no incentive to control spending. Neither are the employees who often receive “must not exceed” numbers to get to various locations. If you give an employee visiting Tokyo a per diem of $ 150, you can bet they’ll try to maximize it. It’s about $ 2,100 for a two week visit. Then there is the hotel at $ 450 a night and the overpriced plane ticket booked by Amex. A two-week business trip could easily approach $ 10,000, and that’s before the cost of the employee spending their valuable time filling out expense forms for their trip with accompanying receipts.

Unlike the city of Portland, expense reports were never great to begin with. Every employee hates spending the afternoon trying to get a refund for money they had to pay for a business trip. This is where Expensify realized that the employee would be the easiest channel to sell a solution.

About Expensify Stock

Founded in 2008, Expensify of Portland has raised just over $ 38 million in funding to develop their patented SmartScan technology that reads receipts and automatically creates expenses or associates them with transactions imported from a credit card. Patented scanning technology allows anyone to simply take a photo of any receipt – regardless of currency or handwriting quality – and then receive an accurate transcript of a receipt with just one click.

After removing the need for people to keep a pocket full of crumbled receipts and spend hours summarizing them all at the end of a business trip, Expensify then moved on to automating the entire ” travel expenses ”, from the initial scanning of receipts to completion. through categorization, expense tracking, expense reporting and approval, reconciliation and next day reimbursements for employees. The company now has 639,000 paid members in 53,000 companies in over 200 countries and territories.

The Expensify freemium business model helps employees solve problems, so that they then become product champions. An impressive 60% of Expensify’s revenue can be attributed to a case where an employee used their app and then recommended it to their manager. About 95% of their income comes from recurring and automated monthly payments made through credit cards. Try as they can, Expensify is not a purely SaaS business, it is a subscription business.

As you might expect, Expensify took a hit when business travel stopped due to the pandemic. As the number of users using their platform has declined, revenues have performed much better, recovering rapidly by the end of 2020, with growth continuing into 2021.

Spend historical quarterly income
Spend historical revenue by quarter – Credit: Nanalyze

The Expensify S-1 repository talks about “a pricing change implemented in May 2020 which resulted in a gradual increase in the price per member for our paying members of existing customers not using the Expensify card as part of our management platform. expenses for 50% or more of their approved expenses. “The Expensify card is Expensify’s attempt to expand into the B2B payments niche with a corporate card, but it doesn’t match the issues most businesses face when it comes to employee spending.

The problem of employee spending

Let’s go back to our example of a business trip to Tokyo. A fundamental problem with business travel has always been that employees have no incentive to cut costs. In fact, they have every interest in spending money like drunken sailors. Now that Expensify has captured all of this data, they can use it to save businesses money, not only by negotiating better deals with hotel chains and airlines, but by making employees spend less.

For example, what if this employee who went to Tokyo found out the travel budget in advance – $ 10,000. No matter how much money the employee didn’t spend, half would end up in their bonus at the end of the year. This simple policy could save employers a lot of money on business travel while increasing the premium of employees by rewarding them for their good behavior. When times are tough, the employer can reduce travel and travel expenses and employees can increase their income. Everybody is happy.

With the release of their “Expensify Card”, the company is moving towards the type of value proposition offered by companies like FLEETCOR and WEX. The “Expensify Card” is a recently launched corporate card that captures transaction fees over expenses, meaning that growth only occurs when businesses increase their travel and commute spending. More than half of their customers have at least one Expensify card, and those who don’t will end up paying extra fees.

Expensify offers smart marketing and problem solving, combining the use of artificial intelligence and crowdsourcing to solve a problem faced by almost every employee who takes business travel. Unfortunately, there are far too many red flags for us to consider a punt.

Should you buy Expensify shares?

If you’re looking for financial advice from a bunch of stoned MBAs, you’re probably someone who hasn’t started building wealth yet. You need money to make money. So here are some financial tips. If you must own a vehicle, buy a used Toyota with the money you saved by living under your means. Then deposit the money you would have spent on paying for a car into a savings account and buy large index funds with it. Now that we’ve done our good deed for the day, here are our thoughts on Expensify for what it’s worth.

For us, Expensify doesn’t make a difference. The main reason is that their fortune is tied to employee expense reports. Business travel is a big driver of spend on their platform, and it’s a place where managers look to cut fat when budgets need to be brought under control.

While the market probably hasn’t fully reacted to the ravages caused by the Rona, it has given us a glimpse of industries that could be beaten if we enter a time of economic turmoil. In a recent article on The $ 125 Trillion B2B Payments Opportunity, we explained that corporate spending by employees is often discretionary. That is, T&E budgets will be cut when times get tough. Additionally, many companies have already learned to work together remotely, which erodes the argument that “in person is best. Looking at the growth of members on the Expensify platform, it is clearly stuck for some reason.

Expensify member growth over time has stalled
Expensify membership growth over time has stalled – Credit: Nanalyze

Another reason to steer clear of the company is the founder and CEO whose personal rant in his letter to shareholders lacks direction and clarity, smacks of politics, and instead sounds like he’s running a corporate body. charity. Look no further than his decision to bring politics not only to the workplace, but also to impose it on its customers, further dividing a country which is already reaching a peak of division. We expect the companies we invest in to ban the workplace policy, as Coinbase did. When a country is divided equally in terms of political views, e-mailing 10 million customers and telling them who to vote for is a stupidly short-sighted thing, and certainly not in the best interests of shareholders.

For this business leader, fiduciary responsibility seems to go far behind his prerogatives to save the world, as he puts it without a hint of irony:

It’s time for us to put aside our silly distractions, get together and do some serious stuff – and for all who answer that call, Expensify will be there.

Expensify CEO and Founder, David Barrett

If only.

Currently 10% of the Expensify card transaction fee goes to charity – Expensify.org – which supports causes which correspond to the political convictions of the PDG. Focus on generating profits for shareholders and let them decide which charities to fund with the return they generate by investing in your business. While the Expensify charity is busy solving “housing equity” issues in New Yawk and Chiraq, serious problems must be solved in their own backyard.

Conclusion

We don’t just invest in technology that solves a major problem, we also invest in business models and the people who drive them – leadership teams who can show a clear vision for future growth with a focus on creation of shareholder value. There has to be a life outside of the initial use cases and the total addressable market, a path to greatness that shareholders can understand and support. Leadership teams need to show that creating shareholder value is a clear priority above any other personal prerogative they may have.

If the IPO goes as planned, Expensify shares will trade under the symbol EXFY.

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