Did PayPay pay too much for Xoom yesterday?

The purchase price of $890 million put a 25% premium on Xoom’s stock price, which has been on a torrid climb since April. That’s $890 million for a company that lost money last quarter. So why would PayPal give Xoom shareholders so much for the company?

The official line is that Xoom lets PayPal get into international remittances. Here’s Dan Schulman, president of PayPal:

Expanding into international money transfer and remittances aligns with our strategic vision to democratize the movement and management of money. Acquiring Xoom allows PayPal to offer a broader range of services to our global customer base, increase customer engagement and enter an important and growing adjacent marketplace. Xoom’s presence in 37 countries – in particular, Mexico, India, the Philippines, China and Brazil – will help us accelerate our expansion in these important markets.

OK, but let’s get into the numbers. In the 12 months ending March 31, Xoom transferred $7 billion of funds for about 1.3 million customers, according to the company. That means Xoom transferred around $5,400 per customer. However, Xoom only generated $168 million of revenue from those transactions, or about $129 per client.

By comparison, PayPal generated $1.1 billion of international revenue in the final quarter of 2014, or $4.4 billion on an annualized basis. Consider that PayPal had 162 million “active digital wallets” at the time, it can be extrapolated that PayPal generated $27 in international revenue per active digital wallet. Now, this is not the same as a Xoom customer, but at the least there is a sense from this analysis that international remittances generate more revenue than PayPal’s traditional payments business.

PayPal specifically pointed to its U.S. customer base of 68 million as primed for Xoom’s services. There is little chance that PayPal will convince 100% of those customers to “Xoom” money overseas, so let’s go with a more modest estimate that a third become active Xoom clients: around 22 million. The math says that could amount to about $3 billion of revenue.

These are all rough numbers, and they offer little in the way of growth estimates. PayPal’s international business has been growing about 17% on a year-over-year basis. Might that growth rate continue? Might it apply to Xoom? Might Xoom’s 24% YOY growth rate in revenue last quarter continue under PayPal’s stewardship, even if Western Union acquires MoneyGram, as rumored?

And, most importantly, might all this potential be worth $890 million? The answer to this last question seems to be, yes.