Insane single stock vol
This week, the VIX reached a new low for 2026. At the same time, single stock volatility seems to be at extreme levels.
Companies moving 20% or more on minimal news seem to be the new norm. This earnings season has felt particularly bad.
And it’s not just the down moves (although there are plenty of blow-ups). Both Microsoft and Adyen were up 16% on earnings, which were sort of in line… we get that the companies were cheap, but then why did the shares get trashed only a few quarters ago?
Or Reddit (which we added to our Fallen Angels Monitor), which sold off more than 20% despite a major profit beat and improved long-term guidance (for those who care about GAAP earnings). Earnings revisions are up, by a lot. And still shares crashed because of a minor step down in US daily active users.
Are we overlooking major long-term risks, or is someone else just nitpicking and losing sight of the bigger picture?
We’re all for low-stress buy-and-hold investing, getting nine hours of uninterrupted sleep per night, and keeping a full head of hair. But you’ve got to trade the market that’s in front of you.
If companies move up and down 30% on minimal news, it’s hard to sit by and not use the volatility. Even as long-term investors, it really pays to trade around your positions right now.
But there is a danger in getting too cute. If the market wants to hand us 20% moves around quarterly data points, we’re happy to trade them. We just don’t want to become so obsessed with predicting the next 20% move that we miss the 300% one.
Payments update
With that in mind, let’s talk about payments, an industry we wrote up in November of last year. At the time, we made the case for a select group of ‘no-earnings companies’. While most companies with no earnings have failed business models and dim prospects (see our piece on ‘The bear market in dumb stuff’), some have no earnings because reinvestments run through the P&L.
For payment companies, that investment is in customer acquisition. If customers move to a competitor the moment they are offered a $5 promotion code, customer acquisition is a waste of money. If customers are sticky, say because they won’t trust a new entrant with $500 of their hard-earned savings, it can be a very high-ROI investment.
Since our write-up, payment companies have been in the doldrums amid fears of stablecoin disruption. Somehow they have also ended up in the same bucket as AI losers. Every day the SOXX is up, payment companies seem to be down. There is little logic to this beyond fast-money positioning, and we think they are missing the bigger picture.
Remitly – first a modest victory lap…
Fortunately, we put most of our chips in payments at Remitly (with the remainder in Wise and, more recently, Adyen). We hope RELY has been as lucrative for our KEDM subs as it has been for us.
…and then an update
With that minor victory lap out of the way, let’s zoom out and look at RELY’s fundamentals over the last four years.
What you get is a graph that shows brilliant execution. A company that consistently grows the top line and shows strong operating leverage. A business that went from being barely break-even to solidly profitable, while simultaneously reinvesting in R&D, marketing, and lower take rates to keep growing despite the higher base.
This, of course, begs the question: with a fundamental graph like that, why have the company’s shares been trading like a shitco with an accounting scandal, a broken business model, and a CEO who just fled to a non-extradition country?
What happened to RELY? For starters, they got a new CEO: Sebastian Gunningham. As we reported in our Golden Handcuff Monitor, Gunningham receives a base salary of just $350k a year, alongside a long-term incentive plan tied to share-price targets ranging from $20 to $50. Hit $50, and he was looking at a little over $100 million. Suddenly, shareholder value creation became a rather personal matter.
And what did Sebastian do to get himself closer to the beachfront house and private jet, while earning the eternal gratitude of shareholders? He realized he was running a fixed-cost business.
Remitly continued to grow at 20%, but instead of spending every incremental dollar on another exciting project with an uncertain payoff, he stopped adding people.
Remitly even shut down its Israeli R&D center with seemingly little impact on operations. Somewhere, Carl Icahn is shedding a proud tear.
There was plenty of fat on the bone. He cut it.
A year ago, analysts were debating whether RELY could ever reach 20% margins, and whether shareholders would actually see any of those profits after SBC.
Now the market is starting to pencil in 30% long-term margins. SBC is coming down too. Suddenly RELY isn’t cheap based on made-up non-GAAP earnings two years into the future. It’s cheap on actual GAAP earnings.
The bigger picture
But that’s the nitty-gritty. We care about the bigger picture.
While the market worries about stablecoins disrupting Remitly and Wise, both continue to take share from legacy players like Western Union and MoneyGram.
In the legacy model, Western Union earned fat take rates partly because the payment rails included a bodega taking your cash in New York and another handing it to your aunt in New Delhi. Both took a cut, making much of the cost base variable.
Today, the rails are largely technology, plus the occasional bodega when grandma in the Philippines doesn’t have a bank account. Technology is mostly a fixed cost, creating economies of scale and room for fewer winners.
With take rates falling from 5%+ to barely 2%, the real costs, and increasingly the competitive advantage, have shifted to customer acquisition, AML/KYC, and fraud. The rails themselves matter less.
That’s why stablecoins don’t necessarily cannibalize RELY. If they provide a cheaper rail, RELY can simply use it. And management says they already do, “where it makes sense.”
Ask them about stablecoins, and you’ll quickly end up discussing the cost of converting USDC into Peruvian soles so grandma can buy an Inca Kola. The blockchain is fantastic right up until grandma wants soles instead of USDC.
This is very different from the legacy model, where Western Union earned 5%+ take rates largely from owning the distribution network and moving money.
If stablecoins make the rails cheaper or faster, great. RELY can use them. Management has no religious commitment to ACH. A cheaper rail doesn’t cannibalize the things RELY actually gets paid for.
If we’re going to lose sleep over disruption, we’d at least like to lose sleep over the right disruption. Nubank knows how to acquire Latin American financial customers cheaply. That scares us considerably more than another stablecoin white paper.
If Nubank ever moves into remittances, our preferred outcome is simple: they decide building the infrastructure is annoying and buy RELY. The less preferred outcome is that they build it themselves. We’d probably reconsider our investment.
Either way, stablecoins aren’t the moat.
In the meantime, we own a company growing 20%+, rapidly expanding margins, and trading at a mid-teens 2027 GAAP P/E. The stock has doubled in ten months. Earnings estimates have risen even faster.
So let others trade every stablecoin headline. We’ll keep watching the bigger picture. That’s where the multi-baggers come from.
