Chime Stock Surges 37% Post-IPO, Analysts Bullish on Growth

Chime Financial, a neobank that went public less than a month ago, has already garnered positive attention from analysts who are optimistic about its future prospects. KBW research analyst Sanjay Sakhrani issued an “Outperform” rating for Chime, along with a $42 price target, highlighting the company's potential in the segment catering to low-income consumers. Founded in 2012, Chime offers traditional financial services such as fee-free checking and savings accounts to U.S. consumers earning up to $100,000 a year, a demographic that traditional banks often overlook.

Sakhrani noted that Chime has the necessary technology infrastructure, product-market alignment, and innovation velocity to serve this demographic effectively and profitably. Chime's initial public offering (IPO) on June 12 saw shares rise by 37%, and despite some initial volatility, the stock has remained above its $27 IPO price, trading at over $31 as of Tuesday afternoon. Analysts typically wait until the 25-day IPO quiet period is over before issuing research reports, and Chime went public 26 days ago.

Chime has penetrated less than 5% of its total addressable market, which includes 196 million Americans earning up to $100,000 annually. As of March 31, the startup had 8.6 million active members, with two-thirds relying on Chime as their primary bank. Sakhrani believes Chime has successfully harnessed this "sticky" user base to drive increased product adoption and monetization, positioning the startup for sustained growth in average revenue per active member (ARPAM) as it introduces new offerings. ARPAM is a metric that measures revenue generated by active members.

Sakhrani views ARPAM expansion as a core revenue driver over the next 2-3 years and a potential source of upside to near-term expectations. He believes the company has taken a conservative approach to modeling contributions from four new product launches anticipated over the next 12 months. Chime, which partners with Bancorp Bank and Stride Bank to provide its services, has launched several new products in recent years, including Instant Loans and MyPay. MyPay, which allows eligible members to access a portion of their pay before payday, has accounted for about 45% of Chime’s year-over-year revenue growth over the past two quarters. Much of Chime’s future growth is expected to come from credit and lending products like MyPay and Instant Loans.

Chime bears the risk of loss related to these products and is liable to its bank partners for any default on unpaid balances. As Chime launches these new products, loss rates typically spike and then come down. Sakhrani emphasized that the ability to manage this risk will be key for the company to grow profitably. Chime relies on interchange, the fee merchants pay when a consumer uses a Chime-issued debit or credit card, to drive much of its revenue. The fintech reported about $1.7 billion in revenue for fiscal 2024 and $518.7 million for the three months ended March 31. Roughly 75% of Chime’s revenue is fee-based and tied to interchange.

Chime faces tough competition from traditional financial institutions and various fintech platforms targeting the same users. Many of these competitors have greater financial resources or larger user bases, which could pose a risk to Chime's long-term sustainable growth. However, Sakhrani remains optimistic about Chime's chances against its competitors, noting that Chime's lead in the space and strong track record of a highly engaged customer base put them in a good competitive position.