Chime Raises Revenue Forecast Following Strong Q3 Earnings
Neobank Chime has increased its full-year revenue forecast, following a solid performance in its third-quarter earnings. The fintech company is riding the wave of increased consumer demand for digital banking services, shifting its revenue sources towards interchange fees.
Q3 Revenue and Active Users Increase
Revenue for the quarter that concluded on September 30 was $543.5 million. This is a 28.8% increase from $421.9 million a year earlier, surpassing Wall Street estimates of $531 million, as per reports from S&P Global. Chime now anticipates its full-year revenue to be in the range of $2.163 billion to $2.173 billion, up from its previous forecast of $2.135 billion to $2.155 billion.
Chime’s active user base, i.e., consumers who have conducted at least one money movement transaction on the platform within the last month, has grown by 21% year over year to 9.1 million. The neobank was the leader in new checking accounts opened in Q3, surpassing incumbent banks such as JPMorgan Chase and Bank of America, according to a J.D. Power report published in October.
Robust Consumer Spending Amid Economic Uncertainties
Despite mass layoffs and the ongoing government shutdown unsettling the U.S. economy, Chime has experienced a 15% year-over-year increase in purchase volume to $32.3 billion. Chime CEO Christopher Britt affirmed that there was “no sign of a pullback” in consumer spending during this quarter.
“Despite what you hear in the headlines around macro risk and health of consumers, among our members, we’re seeing spending that’s remaining robust,” Britt said. “Despite all the noise, our data suggests that consumers are healthy, consumers are remaining employed, and in general, appear to be on pretty steady ground.”
Launch of ChimeCore and Chime Card
Chime announced during its earnings call that it had completed the migration onto ChimeCore, an in-house core processor unveiled earlier this year. Britt said, “We’re now 100% on our own technology stack,” adding that ChimeCore sets them apart from traditional banks and fintechs that rely on costly and often inflexible third-party solutions.
ChimeCore facilitated the launch of the new Chime Card, which Britt believes will be a major revenue driver for the company in the coming years. “Because it’s a credit card, we earn 175 basis points of interchange, which is over 50% higher than our average Q3 take rate,” he said.
Financial Outlook
Despite the strong performance, Chime reported a net loss of $54.7 million for the quarter, a 148% increase from the $22 million net loss reported a year earlier. However, the diluted earnings per share improved by 55% from -$0.34 per share reported last year to -$0.15 per share this year.
Chime also anticipates incurring a significant one-time expense in the next quarter as part of the transition to ChimeCore. “As part of our termination agreement with our third-party processor, Galileo, we will incur a one-time expense of approximately $33 million,” said Chime’s Chief Financial Officer Matthew Newcomb.
Analyst reports from Keefe, Bruyette and Woods and William Blair have given Chime an outperform rating, expressing confidence in the company’s growth potential and profitability. However, Chime’s stock was down by 2% in mid-afternoon trading on Thursday.
As Chime continues to shift its revenue towards interchange fees with the rollout of its Chime Card, and with robust consumer spending despite economic uncertainties, the neobank seems poised for strong growth in the coming years.
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