{"text":[[{"start":7.75,"text":"This article only represents the author's own views."}],[{"start":11.3,"text":"On paper, at least, Extransfer Ltd. is a bit of a victim of its own success. As it seeks to go public, the fintech company’s management must be hoping investors see through this irony created by accounting rules that make it appear to be a massive money-loser."}],[{"start":27.6,"text":"Last Friday, Extransfer, which provides cross-border trade payment services under the XTransfer brand, filed for a Hong Kong IPO. At first glance, the company appears to be a typical, fast-expanding tech business. Founded in 2017 by a team of veterans from Ant Group and Visa, the enterprise boasts a trajectory that is, on the surface, solid but unremarkable for its sector. What makes Extransfer stand out is its eye-popping gross profit margin that exceeds 90% – which reflects extremely low costs the company incurs to provide its services. Yet, despite that extraordinary feat, the company is deeply in the red."}],[{"start":65.65,"text":"Its huge loss is less a sign of operational failure and more the result of what essentially is an accounting penalty for strong growth. Because Extratransfer has been so effective at raising capital and boosting its valuation – which hit about $3 billion in its latest funding round in March, triple the amount in 2021 – it has fallen into an accounting trap under IFRS rules."}],[{"start":88.25,"text":"As part of their investment in the company, Extratransfer issued convertible preferred shares to private backers including Alibaba and China Merchants Venture. Under IFRS standards, these instruments are treated as liabilities that must be regularly updated to reflect their latest market value. As the startup's valuation rises, the value of those liabilities increases, eroding the company’s bottom line. Extransfer booked a $524 million valuation loss for the preferred securities last year, up from $162 million in 2024. As a result, its net loss ballooned to $483.5 million from $153 million during the period."}],[{"start":130.8,"text":"Profitable on an adjusted basis"}],[{"start":133.3,"text":"In short, the more valuable Extransfer becomes as a company, the more money it appears to lose due to the increase in the value of the preferred shares. Strip away this non-cash drag on net income, and Extratansfer made a decent adjusted net profit of $47.7 million last year. It also generated a net cash inflow of about $58 million from operations, nearly six times the amount for 2023."}],[{"start":158.8,"text":"For investors worried about the optics of nearly $1 billion in cumulative losses over the last three years, here’s the good news. The paper losses will stop the moment the company rings the opening gong at the Hong Kong Stock Exchange. Upon a successful IPO, the convertible preferred shares automatically convert into ordinary ones. And at that moment, they move from the \"liability\" column to the \"equity\" column on the company’s balance sheet."}],[{"start":186,"text":"Because companies don’t have to incorporate changes in the values of their ordinary shares in their income statements, Extransfer will stop being punished for becoming more valuable as a company, and its bottom line will start to more truly reflect its operational performance."}],[{"start":200.9,"text":"Operationally, the company does appear to be doing quite well in its somewhat unglamorous niche of global finance. It focuses on business-to-business (B2B) transactions among small- and medium-sized enterprises (SMEs) trading in physical goods like textiles and machine parts, as opposed to e-commerce payments or consumer remittances."}],[{"start":222,"text":"Extransfer has built a specialized settlement network called X-Net and an AI compliance tool named TradePilot to facilitate the heavy documentation required for traditional trade. Thanks to the use of technology, its fraud rate is just 0.003%, one of the lowest in the sector, the company said in its prospectus."}],[{"start":244.75,"text":"High-margin business"}],[{"start":246.25,"text":"Now, here’s how the company can operate on such high margins. At its heart, Extransfer’s business model is about removing fees typically charged by banks. Unlike traditional financial institutions that hit small businesses with monthly account fees and wire-transfer charges, Extransfer makes those services free for users who open and maintain global accounts and use them to send money to each other on the company’s network. It essentially adopts a \"freemium\" approach that lowers costs for businesses."}],[{"start":275.5,"text":"So how does the company make money? It generates the bulk of its revenue from exchange-rate spreads — the difference between wholesale rates it gets from banks and retail ones it offers its customers. Another growing revenue source is fees from technology services that help SMEs comply with anti-money laundering rules, provide them with market intelligence like trade trends, and enable them to manage currency risks and bookkeeping more easily."}],[{"start":299.75,"text":"On the cost side, because Extransfer’s TradePilot AI handles the grueling work of checking invoices and shipping labels automatically, the company doesn’t have to hire an army of human auditors. This allows it to process large volumes of business transactions at almost zero cost, turning the massive amount of global trade payments it handles into a highly efficient, automated cash-generating machine for the company."}],[{"start":325.8,"text":"That said, Extransfer does incur heavy operating expenses, including personnel costs and marketing expenditure. But its ability to generate cash directly from customers by offering them services separates it from many fintech ventures that act as facilitators reliant on fees from banks that conduct actual financial transactions. That highly profitable business model has helped Extransfer build up its own cash holdings to $153 million at the end of last year, more than double what it had two years earlier."}],[{"start":356.3,"text":"One reason Extransfer is looking raise more money through a Hong Kong IPO is to further expand globally. It already earns nearly half of its revenue outside Greater China, but it is looking to accelerate growth in the Middle East and Africa. Its revenue is already growing quickly, rising 53% last year to $248 million from $162 million in 2024."}],[{"start":380.1,"text":"Extransfer’s $3 billion valuation translates into a price-to-sales (P/S) ratio of about 12, based on its 2025 revenue. That’s double the 6 for Wise plc (WISE.L), which focuses on consumer and SME remittances, among its payment-service peers. Wise has a lower gross margin than Extransfer but its operating margin is superior, even on an adjusted basis that excludes the charges for changes in the value of the convertible preferred shares."}],[{"start":407.45000000000005,"text":"At the $3 billion valuation, skeptics may think Extransfer is asking for too much. The task for the company’s managers will be convincing investors that it can cut operating expenses while maintaining its strong top-line growth and almost too-good-to-be-true margins."}],[{"start":433.05000000000007,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1777552080_5827.mp3"}