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Shares of Chime Financial (NASDAQ: CHYM) rallied 44% in August, according to data from S&P Global Market Intelligence.
Chime delivered an excellent second-quarter earnings report, showing stronger-than-expected growth and a significant inflection in profitability. With the stock having sold off since going public a little over a year ago, it’s no surprise to see a rally in response to the strong numbers one year later.
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Chime’s margins skyrocket in Q2
In the second quarter, Chime’s revenue grew 27% to $670 million, with earnings per share swinging from a loss in the prior-year quarter to a positive $0.07. Both figures handily beat analyst expectations. Chime also raised its full-year revenue guidance to between $2.725 and $2.745 billion, up from the prior quarter’s range of $2.66 billion to $2.69 billion, and adjusted EBITDA (earnings before interest, taxes, and depreciation, and amortization) between $465 and $475 million, up from the prior quarter’s guidance between $416 million and $431 million.
While revenue growth came in ahead of expectations, the real story appeared to be the company’s skyrocketing profit margins. Second quarter adjusted EBITDA margins of 15% marked a more than 12 percentage point improvement relative to the year-ago quarter.
That’s a big inflection in Chime’s profitability, and shows the company can grow at a very healthy pace with little to no incremental spending. In the company’s presentation, management showed that Chime has generated 24% more revenue per member over the last four years, even as the cost to serve each member has decreased by 35% over that period.
In its prepared remarks, Chime management cited the effective use of artificial intelligence in its back-office and marketing functions as a driver of cost efficiency.
Chime also introduced Chime Prime in April, in which members who deposited at least $3,000 into their Chime accounts every month earned extra rewards. Management pointed to the new program as benefiting second-quarter activity. Chime also just introduced Chime Invest in July, allowing users to buy stocks and exchange-traded funds commission-free.
Both efforts seem geared toward giving the fintech’s lower and middle-class consumers some of the perks and benefits usually reserved for higher-earning customers at larger banks.
