How does Raiz (ASX:RZI) stack up against its old friend Acorns?

It's like comparing apples, oranges and Acorns, when it comes to these investing apps.

The latest news of US-based Acorns planning to go public through a SPAC merger has shone a light on its old Aussie friend, Raiz Invest Ltd (ASX: RZI). At the time of writing, the Raiz share price is trading slightly higher at $1.325, up 0.4%.

For the early investors and users of the micro-investing app, you would recall Raiz being known as Acorns. In January 2018, the Australian business ceased its joint venture with Acorns Grow Inc and rebranded to Raiz.

Raiz swiftly listed on the ASX five months later.

Now that Acorns plans to go public, we get to compare the two investing apps that stemmed from the same roots.

woman looking at iPhone whilst working on a laptop

Image source: Getty Images

How the companies differ

Acorns and Raiz are similar in what they offer to customers – mobile-first micro-investing with a round-up feature which uses your spare change from purchases to invest.

Where the companies differ substantially is how they make money. Acorns derives majority of its revenue through a tiered subscription model, ranging from $1 to $5 per month.

Raiz uses a fee model tied to the account balance. In a way, this recurring monthly fee is like Acorns' subscription model.

In theory, Raiz's model should allow it to capture more revenue from its customer than Acorns as the account value grows to a monthly fee exceeding $5.

Another point of difference between Acorns and Raiz is size. Raiz was relegated to the Asia-Pacific region as part of an agreement with Acorns when their joint venture ended. A consequence is that Acorns holds a much larger market in the United States.

The by-product is Acorns boasts 4 million subscribers, while Raiz is hovering around 430,000 active customers. This user-base discrepancy translates to the companies' funds under management (FUM) and revenue.

Acorns touted $4.74 billion in FUM at the end of April. Meanwhile, Raiz reported its FUM to be $737.56 million. Acorns' revenue for the year ending 31 December 2020 came in at $71 million, while Raiz recorded $11.155 million.

How does ASX-listed Raiz compare?

The Raiz share price has remained mute today, finishing flat at $1.32. It seems the market was unfazed by the valuation attributed to Acorns.

Interestingly, while Acorns possesses a user base roughly 9.3 times larger than that of Raiz, and revenue that is approximately 6.4 times greater, the valuation doesn't adhere to an equivalent ratio.

According to the slide deck, the SPAC merger with Pioneer Merger Corp has a pro forma equity valuation of US$2.151 billion. This is 25 times greater than the A$108.2 million market capitalisation of Raiz, based on its current share price.

There are many factors at play when it comes to a company's valuation. This doesn't necessarily mean the Raiz share price is trading at a discount. However, shareholders might find it interesting.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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