The buzz is that fintech startups that were once soaring high and hoping to go public may face some serious struggles in getting investors to take notice. It’s not all bad news, though! The market for new listings is finally starting to thaw after being frozen for over a year, thanks to the U.S. Federal Reserve’s strict monetary-tightening policy. But even with this positive development, these startups will still have their work cut out for them in attracting investor attention. It’s a challenge that will require some serious finesse, and we’ll be watching to see how they rise to the occasion.
The cautious market mood has meant that only the bravest of startups, backed by solid fundamentals and steady revenue streams, have dared to go public this year. In fact, only around 24 companies have listed their shares, with another 140 filing for IPOs. But fear not, as the tide is turning and investor confidence is on the rise, prompting more companies to reignite their IPO plans for the year ahead.
However, there’s a twist in this tale! Our fintech friends may not be joining the race as they face a plethora of worries, including rising cash-burn rates, mounting losses, and poor share performance from some of their listed peers. But keep your eyes peeled, because some digital banking pioneers are still shining bright as top IPO candidates. Chime and Stripe are leading the pack, along with investing app Acorns and buy-now-pay-later firm Klarna. Will they take the plunge and become the talk of the town? We’ll just have to wait and see!
The pandemic saw fintech apps soar in popularity, as consumers stuck at home sought easy credit in the near-zero interest rate environment. Digital payments giants like PayPal and Square expanded their buy now, pay later services to attract millennial and Gen Z customers.
But now, with interest rates soaring to their highest levels since the global financial crisis, startups with huge exposure to subprime borrowers are finding it tough to justify their high valuations under the scrutiny of investors. Rachel Gerring, EY Americas IPO leader, and Mark Schwartz, IPO and SPAC Capital Markets Advisory leader, said that it’s not a one-size-fits-all situation in the fintech sector.
While some companies have the scale and cash flow to push forward with their IPO plans, others may need to adopt a wait-and-see approach. In 2021’s IPO boom, 20 fintech companies raised a whopping $10.93 billion, overshadowing the meager $144 million raised by a single offering the following year.
But don’t despair just yet, as the IPO market isn’t closed, it’s just more focused on valuation and profitability. According to David Ethridge, U.S. co-IPO leader at PwC, companies looking to list will need to shore up investor confidence in their cost-cutting plans and be transparent about their attempts to lower cash burn. It’s a tough road ahead, but the winners in this race will be the ones who can weather the storm and come out on top!
It’s time to talk about the elephant in the room: fintech companies going public and falling short of their shareholders’ expectations. It’s been a bumpy ride for the likes of Coinbase, Robinhood, and Affirm Holdings, with their shares taking a beating as they steadily book losses.
Take Coinbase, for instance, which boasted a massive $86 billion valuation in its Nasdaq debut back in April 2021. Fast forward to today, and its market cap has plummeted to a mere $15 billion! Similarly, Robinhood and BNPL lender Affirm Holdings have both lost a staggering $20 billion in valuations since going public.
So what’s the deal? These high-growth fintechs were previously valued like tech companies, with their valuation determined as a multiple of sales. But with the tech boom having subsided, they’re now being evaluated using the playbook investors use for financial firms, where earnings play a crucial role.
As Renaissance’s Kennedy puts it, it’s a whole new ball game out there. These fintech companies need to prove they can turn a profit if they want to win over investors and avoid being relegated to the losers’ corner. The stakes are high, the competition is fierce, and only the strongest will survive. Are you ready for the ride?
