It’s been less than a month since Chime Financial went public, but the neobank is winning over analysts who are already writing bullish predictions about the company’s prospects.
KBW research analyst Sanjay Sakhrani wrote in a research note on July 7 that Chime is emerging as a winner in the segment that caters to low-income consumers. He issued an “Outperform” rating for Chime, along with a $42 price target.
Founded in 2012, Chime offers traditional financial services, like fee-free checking and savings accounts, to U.S. consumers earning up to $100,000 a year. Sakhrani argues these everyday Americans are not well served by traditional banks.
“Few digital platforms have the technology infrastructure, product-market alignment, and innovation velocity required to serve this demographic effectively and profitably, and we think Chime is one of them,” Sakhrani said.
Wall Street analysts typically don’t issue research reports for a company until the IPO quiet period, which lasts 25 days, is over. Chime went public 26 days ago.
Sakhrani thinks Chime has “successfully harnessed this sticky user base” to drive increased product adoption and monetization. This positions the startup for sustained growth in average revenue per active member, or ARPAM, as it rolls out new offerings, Sakhrani wrote. (ARPAM is a metric that measures revenue generated by active members.)
“We view ARPAM expansion as a core revenue driver over the next 2-3 years and a potential source of upside to near-term expectations, as we believe the company has taken a conservative approach to modeling contributions from four new product launches anticipated over the next 12 months,” Sakhrani said.
Chime faces tough competition from traditional financial institutions, like Ally and Capital One, and a variety of different fintech platforms that target the same users like SoFi, Affirm and Cash App (owned by Block). Many of these platforms have greater financial resources or larger user bases that may give them a competitive advantage, Sakhrani argues, adding that the “intense competition could pose a risk to long-term sustainable growth.”
However, he remains optimistic about the fintech’s chances against its competitors, adding that “Chime’s lead in the space and strong track record of a highly engaged customer base puts them in a good position competitively, in our view.”
