Gas prices unexpectedly came down, and that’s hurting revenue.
Shares of financial technology (fintech) company Wex (WEX -14.98%) plunged on Thursday after reporting financial results for the third quarter of 2024 that fell well below management’s prior guidance. As of 3:10 p.m. ET, Wex stock was down 14%.
Lower fuel prices hit Wex
Wex is an enterprise fintech company specializing in fuel cards, corporate travel, and benefits-management software. In Q3, the company generated revenue of $665 million, which was a record. But this was only up 2% year over year, and it fell short of management’s guidance of $688 million to $698 million.
In short, a large part of Wex’s business relies on fuel prices. It takes a cut when customers use its fuel cards, but the cut is smaller when gas prices fall. Q3 fuel prices dropped, resulting in a $21 million headwind. And this headwind caused management to lower its full-year revenue guidance. Previously, it believed it would generate at least $2.68 billion in full-year revenue, but now it believes $2.63 billion will be a best-case scenario.
This lower revenue projection is a big reason why Wex stock is down today.
Could a lower stock price be a good thing?
This lower stock price could be a blessing in disguise for patient, long-term Wex shareholders. Fuel prices will always be a risk for this business. But even when revenue comes up light, profit margins are good. Its Q3 operating margin of 30% was particularly encouraging.
The point is, Wex generates lots of cash even in a slow quarter. And management is aggressively repurchasing shares; its share count is down 12% in just the last two years.
A lower price per share will help Wex’s management repurchase more shares with its authorization plan that it recently increased by $1 billion. So while revenue is presently challenged, the share count is coming down, which could help shareholder returns substantially when revenue growth picks back up.