Coinbase employees vaporize champagne during the company’s initial public offering (IPO) outside the Nasdaq MarketSite in New York, United States on Wednesday, April 14, 2021.
Michael Nagle | Bloomberg | Getty Images
If you had lingering doubts about fintech growth, take a look at Tuesday night’s earnings reports from two newly listed companies.
Cryptocurrency exchange Coinbase reported a 12-fold increase in revenue from the previous year, to $ 2.23 billion. Not to be outdone, online lender Upstart Holdings said revenue increased 11-fold from a year ago to $ 194 million.
These figures are staggering.
For businesses of this size to even double every year, you have to be in the right place at the right time with the right team, and that often means a large injection of capital to acquire new customers. The most successful tech companies of all time have never seen a four-digit growth rate when they were public.
Amazon’s strongest growth was around 300% in 1998, shortly after its IPO. Google’s revenue doubled in its first quarters in the market in 2004 and 2005 before gradually declining. Facebook has never seen triple-digit growth after its IPO.
Even in the pandemic-fueled year 2020 – when new users flocked to digital work and exercise products – Zoom’s growth peaked at 369% and Peloton’s at 232%.
What happens in finance is different, and Coinbase and Upstart are the public market agents for some of the biggest changes happening across the world.
Big banks and investment firms have lost control over the consumer. The loans are available from a plethora of easy to use online services. Start-ups and credit card companies are killing the fees. The same goes for brokers and app-based trading platforms. On the public and private markets, the valuations are astronomical.
Square, which went public in 2015 as a payment service for small businesses, is now worth $ 125 billion and has a portfolio of business, consumer and money transfer services.
Square last week said it was spending $ 29 billion on shares on Afterpay, an Australian provider of point-of-sale loans for retailers. It’s one of the biggest tech deals ever, and more than Microsoft, Google, Facebook, Amazon, Apple, Oracle, Cisco, or Intel ever spent on a deal.
“In the wake of Square’s purchase of Afterpay, there’s no other tech space as hot as fintech,” said Eric Jackson, technology investor and president of EMJ Capital.
In addition to Square, Upstart (which he owns) and Coinbase, Jackson named Plaid, whose back-end software links bank accounts to fintech apps, and online lender SoFi among the companies with the greatest momentum.
“Of course I’m biased and I think Upstart is the best of the bunch,” he said.
He made a lot of money on it. Upstart went public in December at $ 20 a share, and Jackson said he had owned it since the IPO. After jumping 24% on Wednesday, the stock is now hovering around $ 170, valuing the company at more than $ 12 billion.
Founded in 2012 by former Google executive David Girouard, Upstart uses machine learning to underwrite consumer loans and provides its technology to banking partners who can better target customers. Girouard said during the earnings call that 25 banks and credit unions are now using his technology and that there is a “growing list of lenders in our pipeline for the second half of 2021”.
Online loan boom
Upstart said second-quarter revenue jumped 60% from the previous quarter and that June was its first month to surpass 100,000 loans and $ 1 billion in origination volume on its platform.
Comparing the second quarter results to the same period a year earlier is not entirely fair, as at this point in 2020 the country was in the early stages of the pandemic and much of the economy was in decline. was arrested. Upstart said in its prospectus that many banking partners had halted builds, resulting in lower revenues.
CFO Sanjay Datta made sure to remind investors on the call.
“We will omit references to year-over-year growth rates for our P&L this quarter, as they are all well above 1,000% due to the impact of last year’s pandemic,” he said. said Datta.
Still, picking up even the best quarter for Upstart from last year, revenue grew by over 200%. Net income of $ 36.3 million was up from $ 10.1 million in the previous quarter, which had been its most profitable quarter.
Coinbase’s story is about the historic growth of crypto investments, even though prices have become more volatile.
Second-quarter trading volume jumped to $ 462 billion from $ 28 billion a year earlier. The platform’s assets reached $ 180 billion from $ 26 billion. Net income was $ 1.6 billion, up nearly 4,900% from the previous year.
Coinbase went public via a direct listing in April. With a fully diluted market cap of around $ 77 billion, its valuation has almost increased tenfold since 2018.
Crypto spreads wealth
Crypto trading has also been a major driver of Robinhood, which went public in July and is now worth over $ 45 billion, up from around $ 12 billion a year ago. Although Robinhood has yet to release results as a state-owned company, it said in its prospectus that first-quarter revenue rose 309%.
In private markets, FinTech companies are also attracting massive valuations. Eight of the 20 top-rated private tech companies are in financial services, according to research and analytics firm CB Insights.
Payment company Stripe was recently valued at $ 95 billion. Swedish company Klarna, a competitor of Afterpay and Afffirm in point-of-sale loans, is worth $ 45.6 billion. Revolut, a money transfer and investment app out of the UK, is valued at $ 33 billion, and Brazilian digital banking company Nubank is worth $ 30 billion.
Further down the list, latest online banking provider Chime has raised funds at a valuation of $ 14.5 billion and Plaid, which Visa had planned to purchase before the deal was terminated, is valued at $ 13.4 billion.
There may be foam. And the hype in some areas has surely taken a step ahead of reality.
But as the financial results show, consumer expectations are changing rapidly, and so is the flow of money. There’s a reason JPMorgan Chase CEO Jamie Dimon warned shareholders in his April annual letter that “banks are playing an increasingly smaller role in the financial system.”
Fixed: This update fixes a typo that was in an earlier version of the story. Upstart made 100,000 loans in June, not $ 100,000 in loans.
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