Ann: Appendix 4C - quarterly, page-9

Ivan - You bring up an interesting point and one that I ponder incessantly when working on my EML model.
Quite often on HC I see posters talking about scale and margin expansion as if it's some wild fantasy where growth is free. Sometimes this is due to management 'leading-on' the investors with some rampy talk, while other times its just internet hero's and herd mentality at it's finest.

As for EML specifically, with a decent understanding of the business model, I agree with you on the margin expansion that will occur as revenues rise with this business.

However I do have my reservations with how far margins can go. The major concern is one of precedence. If such a model is scalable to abnormal levels - why didn't Netspend achieve such status? They went from 1% EBIT margins to 20% in one year, one could say that this was pretty insane, however the expansion didn't continue.
Despite revenue more than doubling from $130m in 2007, margins did not increase at all by 2010. Admittedly, I haven't been able to investigate further than just sourcing the figures...however, any issues which caused Netspend to hit a ceiling at 20% are likely to equally, if not moreso (smaller population), apply to EML. Although with the European expansion underway this point on population is somewhat mooted.

Would be interested to hear your, and others, thoughts on this and the types of margins you are expecting EML to achieve in 3-5+ years should they be successful in capitalising on the current deals and those in the pipeline.