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MoneyGram Gives Alibaba a Reason to Press On

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Sep. 15 2017, Updated 9:37 a.m. ET

Money transfer revenues down 4%

MoneyGram (MGI) posted fairly impressive results for 2Q17, which showed there is value in it for Alibaba (BABA). Ant Financial, an affiliate of Alibaba that runs a mobile payment service called Alipay, is seeking the approval of US (SPY) regulators to acquire MoneyGram for $1.2 billion.

For 2Q17, MoneyGram reported that its overall revenues declined 1.0% year-over-year to $410.0 million, which was dragged down by a 4.0% drop in money transfer revenues. Despite the general weakness in MoneyGram’s money transfer business, the digital money transfer subset of the segment was a bright spot. The chart below shows MoneyGram’s revenue trend for the last several quarters.

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Digital money transfer revenues up 10%

MoneyGram said its digital money transfer revenues grew 10% in 2Q17 and represented 15% of overall money transfer revenues of $356.9 million. The company added that its operating income grew 22% to $19.8 million, while net income doubled to $6.2 million. The company generated adjusted free cash flow of $27.4 million in 2Q17, up about $6.2 million over 2Q16.

MoneyGram’s adjusted EPS (earnings per share) of $0.27 rose from $0.15 in 2Q16 and topped the consensus estimate of $0.22.

These financial results, while slightly mixed due to revenues that dropped and missed consensus estimates, may refresh Ant Financial’s push to acquire MoneyGram despite the high regulatory hurdles.

Revenue diversification

Alibaba, through Ant Financial, is hoping to tap into MoneyGram’s extensive global money transfer footprint to grow its mobile payments solutions business. This kind of deal makes sense for Alibaba’s push to diversify its revenue sources beyond e-commerce, a crowded and highly competitive scene where Alibaba is battling Amazon (AMZN), JD.com (JD), and eBay (EBAY).

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