Flywire: A Durable Moat in a Fragmented Market

Flywire's core is a unified software platform, its Student Financial Software (SFS), that tackles a messy, fragmented problem. It doesn't just process payments; it brings together billing, payment plans, collections, and other financial workflows for students-both domestic and international-into a single, integrated system. This isn't a simple payment gateway. It's a critical operational tool for education institutions, and that's where Flywire builds its durable moat.

The moat is built on high switching costs. Once an institution integrates SFS, it becomes deeply embedded in their financial processes. As the company's CEO noted, Flywire is seen as a strategic partner that helps institutions work smarter. The platform's value is proven: clients report 50% more payment plans, 40% less contact volume, and 20% more past-due collections. For a university, this translates to tangible operational efficiency and revenue protection. Switching to another provider would mean disrupting these workflows, risking student satisfaction, and incurring significant implementation costs.

This stickiness fuels a powerful "land and expand" flywheel. In the third quarter of 2025, Flywire demonstrated this by adding more than 200 new clients while simultaneously deepening existing relationships and expanding deal size. The expansion isn't just about selling more seats; it's about institutions adopting more of the platform's add-on solutions, like 529 disbursements or eStore, as their needs grow. This creates a compounding effect, where each new client becomes a potential source of recurring revenue and cross-sell opportunities.

The durability of this moat is reinforced by critical integrations and infrastructure. Flywire's platform is integrated with Ellucian's suite of products, a major player in higher education software. This partnership ensures seamless operation within a common tech ecosystem, making migration away from Flywire even more complex. The underlying global payment network and first-class security are also non-negotiable for institutions handling sensitive student finances. These are not easily replicated assets. For a value investor, this combination of sticky software, embedded workflows, and essential infrastructure creates a wide, durable moat. It justifies a premium valuation because it signals the company's ability to compound earnings for many years to come.

Financial Quality: Compounding Profitability

The numbers from the third quarter tell a clear story of a business compounding its earnings power. Revenue grew a robust 27.6% year-over-year to $200.1 million, a pace that demonstrates strong market demand. More importantly, this growth is happening at a high quality. The company maintained a gross margin of 62.3%, which is impressive for a software and services business, and an adjusted gross margin of 65.7%. This stability, even as the business scales, points to significant pricing power and operational efficiency. The platform's embedded nature means Flywire can pass through some costs and maintain its value proposition without eroding profitability-a hallmark of a durable moat.

The real mark of a high-quality, compounding business is the expansion of its bottom-line profitability. Here, Flywire's performance is particularly strong. The company's Adjusted EBITDA margin increased by 155 basis points year-over-year to 29.4%. This widening margin is the result of the flywheel effect: as more clients are added and existing deals expand, the fixed costs of the platform are spread over a larger revenue base, and the operational efficiencies from integrated workflows kick in. This is not just growth; it's growth that is becoming more profitable over time.

It's important to note that a portion of this top-line growth is driven by acquisitions, like the recent purchase of Sertifi. In the third quarter, Sertifi contributed $12.9 million to revenue. While these add-ons can provide a near-term boost, the key for a value investor is whether Flywire can successfully integrate them and generate the same high-margin, compounding returns from the combined entity. The company's track record of deepening client relationships and expanding deal size suggests it has the operational discipline to do so. The continued growth in Total Payment Volume, even excluding Sertifi, shows the core platform's momentum is robust.

The bottom line is that Flywire's financial profile is one of a business that is not just growing, but growing profitably. The widening Adjusted EBITDA margin is a powerful signal that the company's wide moat is translating into durable earnings power. For a long-term investor, this is the essence of value: a business that can reinvest its profits at high rates of return, compounding shareholder wealth for years to come.

Valuation and Margin of Safety

The valuation of Flywire presents a classic value investor's dilemma: a company with a wide, durable moat trading at a price that has contracted sharply from its recent peak. The numbers tell a story of a market reassessing expectations. The company's trailing price-to-sales ratio has fallen from 2.32 at the end of 2025 to 1.62 today. That's a significant haircut, reflecting a more cautious view on growth multiples. Yet, even at this lower level, the P/S ratio remains elevated for a company of its current scale, hovering above the historical averages of many mature software businesses.

This wide dispersion in analyst price targets-ranging from a low of $9.00 to a high of $20.00-highlights the uncertainty about the path of that growth. The consensus "Buy" rating and an average target implying ~36% upside suggest many believe the current price still offers a reasonable margin of safety. But the spread of views is telling. It underscores that the market is divided on whether Flywire's high-quality earnings growth can continue to accelerate, or if it will slow as the company matures and the initial expansion phase of its moat begins to plateau.

For a value investor, the key is to connect this valuation to the width of the moat established earlier. A wide moat, like Flywire's embedded platform and high switching costs, is what justifies a premium over time. It's the asset that allows a business to compound earnings power year after year, as seen in the long-term stories of great companies. The current price, while down, still embeds a high growth premium. The margin of safety here isn't in the price being dirt cheap, but in the durability of the underlying business. If the moat holds and the flywheel continues to turn, the company's ability to generate high-margin, recurring revenue should eventually validate a higher multiple.

The bottom line is that Flywire's valuation today is a bet on execution. The price drop provides some cushion, but the real margin of safety comes from the business model itself. It's a bet that the operational efficiencies and client stickiness will continue to widen margins and fuel profitable growth, allowing the company to compound its intrinsic value for many years to come.

Catalysts and What to Watch

For a value investor, the durable moat thesis is validated not by past performance alone, but by the company's ability to sustain its compounding trajectory. The key metrics to watch are the quarterly signals that confirm or challenge the strength of Flywire's embedded platform and flywheel. Three watchpoints stand out.

First, monitor quarterly revenue growth rates and gross margin trends for signs of deceleration or margin pressure. The company's recent momentum is impressive, with revenue up 27.6% year-over-year in the third quarter. However, the gross margin did dip slightly to 62.3% from 64.0% a year ago, and the adjusted gross margin fell to 65.7%. For a business with a wide moat, maintaining or expanding these margins as it scales is critical. A sustained deceleration in growth or a widening margin compression would signal that the pricing power or operational efficiencies underpinning the moat are weakening. The core business, excluding the Sertifi acquisition, grew revenue less ancillary services at a solid 19.7% rate last quarter. Sustaining that pace, or seeing it accelerate, would be a positive sign.

Second, track new client additions and expansion within existing accounts as direct evidence of the 'land and expand' flywheel. Flywire has consistently added over 200 new clients per quarter, as seen in the third quarter. This is the "land" phase. The true test of the moat is the "expand" phase-whether institutions adopt more of the platform's suite of solutions, like 529 disbursements or eStore, as their needs grow. The company's own metrics show the power of this: clients using its collection management have collected more than $360 million in past-due tuition and preserved over 177,000 student enrollments. Continued strong expansion in deal size and the adoption of add-on solutions will demonstrate that the initial integration is leading to deeper, more valuable relationships, compounding the revenue per client.

Third, pay close attention to guidance updates for any shifts in the macroeconomic outlook or integration progress from recent acquisitions. The company has cited a better than expected macro backdrop as supporting its results. Any guidance that suggests a softening in client spending or a more challenging global environment would be a red flag. Equally important is the integration of Sertifi, which contributed $12.9 million to revenue last quarter. The company has already paid down $45 million of debt from the acquisition. Future updates should clarify whether Sertifi is being successfully absorbed and whether its high-margin growth is aligning with Flywire's own compounding model. Progress here is key to sustaining the overall growth trajectory.

The bottom line for a long-term investor is that these quarterly reports and guidance updates are the checkpoints for the business model. They show whether the high switching costs, strategic partnerships, and operational efficiencies are translating into sustained, profitable growth. If Flywire can continue to add clients, expand deals, and maintain margins, it will prove that its durable moat is indeed compounding value.