FINTECH – Will Payment Stock Declines Threaten Valuations?

Events in Australia, Brazil, India, Sweden and USA could have a huge impact on Fintech’s?

Five seemingly unrelated events send a powerful message to all Fintechs, Fintech investors, Angel investors and any financial media willing to listen!

Australia – BNPL public stocks down 80% from 2021 peaks.

Brazil – NuBank trims its IPO back with a new ‘conservative’ valuation of US$41 billion

India – PayTMs November IPO was a total failure and stock continues to decline.

Sweden – Klarna says it’s in ‘no rush’ to go public.

USA – Stripe the eCommerce integrator and payment platform will “remain a private company”.

Fintech Payment Start-Ups

Payment start-ups along with Neobanks represent the largest investment category within the private Fintech space accounting for 45% of investment dollars since 2019.

Large mega funding rounds now also dominate – in 2021 accounting for 69% or US$65.2 billion of US$94.7 billion raised in 3Qts 2021.

Fintech Mega Rounds Dominate

Leading these mega rounds includes: Chime, FTX, Klarna, Revolut, Robinhood, Stripe and Varo which totalled US$8.16 billion in funding.

The high concentration of older Fintech’s is a clear sign of a maturing start-up scene – Chime founded in 2018, FTX 2017, Klarna 2005, Revolut 2015, Robinhood 2013, Stripe 2010 and Varo 2015 demonstrate the age of many of the Unicorns Finechs.

Yet revenue per customer is still THE major challenge – now rising interest rates and inflation have arrived.

Has Fintech investing peaked?

The strength of the Fintech sector comes from investor’s ability to exit either by IPO’s or trade sales. Should either slow down or values reduce then all investment activity faces begin recalibrated. Supporting Fintech investment has seen the most rapid run up in payment shares in the last 40 years.

Payment Stocks on a Tear Since 2015

Payment companies especially acquirers and processors have had fantastic growth in share prices, totally outstripping banks.

At their peak in May 2021 three of the top 15 US stocks were payment companies – Visa, Mastercard and PayPal. Today only Visa is in the top 10 by market cap – Mastercard is 18th PayPal is 37th and Square is 91st at US$95 billion.

Payment Stocks Decline in 2021

Visa and PayPal's shares peaked in July - Visa at $252.67 - now $190.16 and PayPal at $310.16 now $179.32 , while Square peaked in February.

PayPal is down 42%

Square is down 33% to $194.50

Visa stock is down 25%

Mastercard is down 24% to $306.28

Shopify is down 17% to $1459.71

Adyen is down 14% to?€ 2443.50

Others are even more dramatic UP Fintech peaked at $38.50 in February – now $5.48 a decline of 86%.

The major ETF IPAY shows the US drops – its ‘share’ price is down 25% from its peak.

The major 48 payment stocks in US and EU are down 32%.

Why have Fintech Stocks been Hammered?

Fintech stocks were given very high growth status and this has meant no need for profits or cashflow – they could burn cash with impunity in 2020.

The global fintech market was valued at $5.5 trillion in 2020, and was expected to grow at a 23.5% CAGR until 2025 – these numbers are now in serious doubt.

The COVID-19 pandemic accelerated growth and the trend was clearly visible; roughly 6% of U.S. citizens (over 14 million people) now use digital banking only for their money management and online entertainment and purchasing surged in 2020.

This activity has unwound in 2021 as consumer activity moving from the home office to high street cafes, restaurant and shops – see this evolve in Google searches yellow is 'at home' with blue 'main street'.

Also concerns over inflation and rising interest rates and other key factors affecting investor outflows in Fintech. Investors moved into more well-capitalized businesses that can weather inflation and macroeconomic impacts.

Rising interest rates won’t help businesses in high-growth mode that need access to capital and in some cases, it could affect returns on their core products, whereas some bigger players with large cash piles won’t face this issue.

Rising interest rates directly impact all Fintechs that lend or who process payments as interest rate rises directly impact products e.g. BNPL is totally unsustainable offering ‘free’ interest free periods, as they pay merchants immediately but need to fund consumers and costs like marketing, bad debts and processing.

Will This Transfer to VC and Angel Investor Funding?

The events of the past month calls for caution and re-examination of VC and Angel investing – the deal pipes just got much longer and with potential interest rate rises all deals need to be repriced.

If VCs and Angel investors face much longer deal times and rising interest rates as well as potential liquidly issues as central banks unwind bond purchases caution will return to new investing.

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Is this the beginning of the end for BNPL?

Editor's Note

MORNING STAR Emma Rapaport??|??27 Nov 2021??

?The sales event of the year is upon us! 7am on Friday an assault was unleashed on my inbox as every retail company I'd ever given my details to flooded by emails with Black Friday discounts. No cash? No problem. BNPL is available at the checkout. Afterpay-style services are coming up with creative ways to entice us to take on more debt, and the retailers love it. Global fintech Klarna?claims?retailers who offer BNPL see an increase in average order value of around 45%. We may have?cut up the credit cards?but we haven't kicked the habit, with Australian's collectively?owing more than $900 million?to buy now, pay later (BNPL) services.

But public opinion is wavering. BNPL players including Afterpay, Fupay and Zip Co got a shellacking on the ABC's Gruen panel last week. Host Wil Anderson said F*-U to BNPL, panellist Kirtsy Muddle has a "real ethical problem with it" calling on the advertising regulators to step in, and Todd Sampson thinks it’s a "twisted, dark form of debt" targeting the most financially vulnerable. On social media, love has turned to hate as influencers who once spruiked BNPL to their followers now condemn the service as a modern debt trap. Groups like Financial Counselling Australia have?been talking about the dangers of unregulated credit?for some time. Now, their concerns are going mainstream.

Investors are heading for the exit. Once market darlings, shares in all the major players are down between 16% and 40% over the last three months. The sector has massively underperformed the S&P/ASX 200 as investors baulk at huge marketing spends, mounting credit losses and lower than expected customer growth.?

In the media, it's open season on the ethics and profitability of the BNPL business model. Reporters from the?Financial Review ripped into the Beforepay?prospectus this week, detailing large write-offs exceeding revenues and accusing the company of building its business off the back of Centrelink recipients. Meanwhile, the?Guardian highlighted?warnings from Openpay auditor's that the company is facing "material uncertainty" after a reported spike in debts as it pursues an aggressive growth strategy in the UK and US.

We haven't even discussed the major existential, namely looming regulatory threats as the RBA pushed for an end to merchant surcharges, and increased competition from heavyweights like CBA's Step-Pay, PayPal's Pay in 4 and ApplePay.

As investors, we're told to seek out unloved and out-of-favour stocks, to look beyond the negative press and focus on the fundamentals. However, the question of quality remains. There's no point being contrarian for the sake of it. On the positive side, BNPL offers customers convenient financing,?which they seem to like, splitting payment over instalments with interest-free terms. Covid-19's acceleration of the shift to e-commerce means retailers are looking for effective digital marketing channels and services to increase order value. But where's the competitive long-term advantage if their services are easily replicable? Competition is forcing these businesses to pay up big time for customer growth while hampering their capacity to raise fees. Like many sectors in their infancy,?loss-making?is a feature of pure-BNPL players, with shares prices propped up by hype, dreams of global domination and pivots to more lucrative revenue streams.

At the Morningstar Investor Conference 2020, I interviewed Zip Co CEO Larry Diamond about the company's growth and plans for the future. Many older members of the audience just couldn't understand why his product was so popular with millennials. How it was any different to a credit card, they asked? Therein lies a big risk. BNPL users are?young women, like me. They’re drawn to the product because it’s credit without feeling like a credit card. If they start to view BNPL like a predatory credit card, sensing they've been misled by clever lines and celebrity marketing, the backlash could be brutal. Time will tell if I'm wrong but I don't see the sector as a market beater over the long term.

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Brazilian fintech Nubank lowers price range for New York IPO

$41.5bn valuation would make lender most valuable financial institution in its home country

FINANCIAL TIMES - Michael Pooler in S?o Paulo December 1st 2021

Nubank has scaled back its planned initial public offering in New York, with the Brazilian fintech backed by Warren Buffett now targeting a valuation about $9bn lower than originally outlined.

The lossmaking digital lender said on Tuesday that it was looking to sell shares at between $8-$9 each, down from an earlier bracket of $10 to $11.

If the top end of its new price range is achieved, Latin America’s most valuable start-up will raise $2.6bn, with an implied market capitalisation of $41.5bn — short of the $50bn-plus valuation previously targeted.

However, even this would still be higher than that of Brazil’s biggest traditional lender, Itaú Unibanco. Nubank is expected to rank among the top-10 US flotations in what has been a record-breaking year. Nearly $300bn in proceeds have been raised in the US in 2021 for IPOs including those by special purpose acquisition companies, according to data from Dealogic.

The decision to trim the pricing by Nu Holdings, the group’s Cayman Islands controlling entity, came as global equities tumbled on fears about the new Omicron variant of coronavirus. It also follows the flop of Indian fintech Paytm’s IPO — the biggest in the Asian nation’s history — whose shares fell by more than a quarter on its trading debut this month.

Founded in 2013, Nubank began by offering zero-fee credit cards and has moved into savings accounts, personal loans, investments and insurance. It has more than 48m users across Brazil, Mexico and Colombia.

Buffett’s Berkshire Hathaway invested $500m in a funding round earlier this year that valued the group at $30bn.

Nubank said that a number of cornerstone investors, including Japan’s SoftBank, had indicated an interest in purchasing at least $1.3bn worth of stock in the IPO. The company plans to sell 289.2m shares, with an overallotment option of 28.6m. The lead underwriters are Morgan Stanley, Goldman Sachs, Citigroup and NuInvest.

Nubank is credited with disrupting a banking sector in Brazil dominated by a handful of players that traditionally charged for basic services, while leaving millions of people excluded.

The S?o Paulo-based group’s revenues doubled to $1.06bn in the first nine months of 2021, though its net losses widened to $99.1m in the same period compared with $64.4m a year earlier. It recently said it turned a half-year profit in its homeland.

Alberto Amparo, investment analyst at Suno Research, said the fintech still had “challenges to monetise the client base”.

“At the new valuation of [about] $40bn there are still expectations of huge growth in earnings priced in,” he added.

Paytm tanks as greedy investors fall prey to smart promoters.

NEWS NINE - Ruchi Mehta 19 Nov 2021

Paytm became the largest IPO launched in the Bombay Stock Exchange

Immediately after the launch, Paytm shares traded in the red zone

The stocks hit the bottom circuit limit of Rs 1,564 towards the end of the trade

Narrative Initial Public Offers (IPO’s) have been the new thrill in the market.

While this rush of IPOs has cheered the investors, it has also become a point of concern Paytm’s IPO was valued at about 50 times FY21 revenues. This is despite a big question mark on its profitability Debate As Paytm stock got listed at the Indian exchanges, its promoter broke into tears. Investors were to join him at the end of the day The joke in the stock markets is that Paytm sucked back from investors all the cash-backs it had given over the past decade As many people have pointed out, the IPO was a classic ‘pump and dump’ play Paytm became the largest initial public offering (IPO) launched in the Bombay Stock Exchange (BSE), as its parent company, One97 Communications, on Thursday launched its IPO with the value of Rs 18,300 crores.

However, amid weak market sentiments, immediately after the launch, Paytm shares traded in the red zone and fell over 20 per cent within minutes of trading. The stocks hit the bottom circuit limit of Rs 1,564 towards the end of the trade, down by 27.24% from the IPO price. On the NSE, Paytm listed at Rs 1,950 and closed at Rs 1,560. Investors now seem to be questioning the company's valuations.

Retail investors have been jumping into the IPO frenzy in the hope of getting quick listing gains, writesRuchi Mehta Initial Public Offers (IPO’s) have been the new thrill in the market, garnering public attention like never before. Generally, a booming stock market often provides the ground for a rise in IPOs. Whenever the former is performing well, the latter tends to pick up. In 2021 so far, 51 companies have made their stock market debut raising more than 1 lakh crore so far! This is the highest amount ever raised in the Indian market via the primary route in a year. Even though the number of IPOs earlier was more than 2021 (No. of IPOs in 2010: 66, 2007: 108), the total amount raised was just a fraction of what has been raised this year so far. This frenzy sees no stopping with 10 more issues lined up for next month.

While this rush of IPOs has cheered the investors, it has also become a point of concern that there is a bubble looming that is just waiting to burst. The Reserve Bank of India (RBI) had also raised concerns about this unrealistic euphoria in the stock markets, in early 2021. RBI governor Shaktikanta Das had warned that there is a disconnect between Indian stock markets and the economy, which poses a risk to the country’s financial stability.

However, it seems like these warnings were not taken seriously. Retail investors have been jumping into the IPO frenzy in the hope of getting quick listing gains. Amidst this euphoria, investors are hardly paying any attention to the valuation of these newly listed companies. Paytm’s IPO is the classic case in point. One97 Communications Ltd., the parent company of India’s biggest fintech firm Paytm, got listed on the stock exchanges at a discount of 9% from its IPO price of Rs. 2,150 on Thursday, 18 November.

It, however, went down further, correcting 27 percent on its listing day, making it one of the worst major Indian stock market debuts. Paytm’s IPO was valued at about 50 times FY21 revenues. This is despite a big question mark on its profitability. Paytm is yet to post profits and its cash flows from operations are also negative for the last 3 years due to losses and higher working capital needs.

The company’s struggle in multiple business segments with no clear focus raises concern about its future profitability too. Overstretched valuations are a clear reason for such a lackluster performance of the stock on its listing day. Nykaa is another case in point which although had a stellar IPO listing (gained 96 percent on the listing day) is also marred with valuation concerns. In terms of Price to sales, it is trading at 41x FY21 sales. It has a market capitalization of more than 1 lakh crore on a profit of just Rs 60-70 crore in FY21. This looks irrational and is not sustainable in the long term. What seems so perplexing is that these companies are commanding such high valuations of 40-50 times revenues when they earn such meager profits or not earning profits at all and don’t even have clear profitability in sight. Stiff competition or high regulatory concerns pose even greater concerns on their future viability. What is even more worrying is that the majority portion of these IPOs are an OFS (offer for sale), where the existing promoters and investors are selling their own holdings to public shareholders. So, it’s time we come out of this euphoria and evaluate each IPO on its fundamentals and not get carried away by the hype around it.?(The author is an analyst at Tavaga Research)

https://www.news9live.com/india/paytm-stock-tanks-as-greedy-investors-fall-prey-to-smart-promoters-only-option-regret-karo-134702

Stripe IPO is not an imminent event, says fintech co-founder

FINTECH MAGAZINE JOANNA ENGLAND NOV 24, 2021

?The fintech giant Stripe will remain a private company for the time being, John Collison has said

One of?Stripe’s?co-founders,?John Collison, has said publicly that the fintech giant will remain a private company for the time being, with no indication that it will pursue an IPO in the near future.?

Stripe was valued earlier this year at $95bn, and its major competitors include?PayPal,?Square,?Adyen,?and?Checkout.com.

Collison, who was addressing an audience at the?Fintech Abu Dhabi Festival?in the UAE, told members of the press,?“We’re very happy as a private company,” and went on to say that the company’s founders believe the company is still in its infancy and has a long way to go.?

“Part of where our patience stems from is the fact that it feels like we are very early in Stripe’s journey,” he stated.?

IPO rumours for Stripe

The news that Stripe was considering an IPO in 2022, was initially released by Bloomberg earlier this year. However, it seems the digital payments fintech is currently focused on expanding its global reach, having launched in Dubai in June.?

According to Collison Stripe’s future plans include extending its reach across the Gulf region to include service rollouts across the UAE, Qatar, and Saudi Arabia.?

A number of global clients are using stripe in the Middle East, such as food delivery giant Deliveroo and the gym wear brand, Squatwolf.

Collison said, “We launched here in the UAE in June only and we’ve seen this massive ramp-up. This is a massive region that is just starting to inflect in terms of its own growth,” he added. “It feels like we are very early on that journey, we’re still heavily investing.”

Stripe cryptocurrency services imminent

Although an IPO won’t be on the cards in the near future, the fintech could soon be heavily involved in cryptocurrency services. When questioned on Stripe’s current status with crypto, Collison did not give a concrete answer but said it was not ‘implausible’ that there would be more headway made in that direction.

Stripe recently said it has established a team dedicated to crypto and “Web3,” a term in tech that refers to a new, decentralised version of the internet.

Collison pointed out that there are a number of innovations coming out of the crypto market that is interesting. These include solana,?a competitor to ethereum, and “Layer 2” blockchain systems like bitcoin’s Lightning Network, which has been created to streamline processes and transactions as well as cut costs.

In the past, Stripe has accepted payments in bitcoin but cited market instability as its reason for stopping backing currency in 2018. However, that now looks set to change, said Collison.

He added, “There have been a lot of developments of late with an eye to making cryptocurrencies better and, in particular, scalable and acceptable cost as a payment method.”

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