Few winners among FinTech IPOs marked during the pandemic

For the FinTech IPO index, it has been a long journey – downwards.

On a day when the Nasdaq plunged 2.5%, and in a month that brings COVID-19 close to its three-year anniversary of being labeled a pandemic, it’s worth taking the pulse of how different FinTech “vintages” have fared.

No matter how you slice it, it’s been a rough ride. Of the 46 names we track – and even against 2023’s year-to-date gains of 19% – only three names are trading above the offer price.

That means that loosely speaking, 6.5% of the names have “paid off” in absolute terms if you had created a basket of balanced holdings.

The flip side: The vast majority of stocks are, as of this writing, underwater, trading as broken IPOs.

We’ll start with the Pantheon of winners first. As of close of business Tuesday, the non-bust group included: 10X Capital (roughly flat), Bill.com (up 156%) and Futu Holdings (up 200%).

Average post-IPO performance to date, even with the winners baked in? Down more than 53%.

And with some additional details on how the “classes” have performed: The companies that went public in 2021 have declined an average of 64% since their debut. The names released in 2020 – through the darkest days of the pandemic – are lower than 59%. The companies that debuted in 2019 include Futu and Bill.com, as mentioned above, so the average return here is 7.7%.

The gains seen by Futu and Bill.com bear discussion, and speak to at least a few long-term trends that certainly have had legs over the past few years. Futu has seen its shares ebb and flow according to sentiment about companies that are betting on China, on the continued demand for online wealth management and online platforms that streamline wealth management. We’ll see more details when the company reports earnings in the coming weeks. But as reported for the third quarter, its total number of paying customers increased 24% year-over-year, and the company’s user base increased 15.6% year-over-year to 3.1 million.

Bill.com has grown with continued demand for back-end and business automation. The company’s latest results show that revenues increased by 66% in the last quarter, measured year-on-year. And like many other firms, it is down from the three-digit percentage point growth measured in previous periods. In particular, there has been demand for supplier ledger solutions. The company said firms using its cloud-based payment platform grew to 182,700, up 35% year-on-year.

As PYMNTS data has shown, the opportunity for back-end automation is significant. In the AP/AR Quick Start Guide, we found that 28% of SMBs said they had low cash flow visibility due to back office inefficiencies.

The Decliners

The list of declining issues is of course wide and varied, and double-digit returns so far this year have repeated some losses, but the climb back to IPO break-even will be a long one. There are names, like MoneyLion, that are down 91% from their offer. Robinhood is down 71% since it went public. In the latter case, the meme stock phenomenon had been a rocket ship, and then fell back to Earth.

Even the names that demonstrate the durability of platforms – especially consumer-facing platforms – have been hit hard. SoFi, which is down 71% since its market debut in 2021, has reported an increase in deposits, up 46%, and said personal loan originations were up 50%. Separately, Nu Holdings, which is more than 50% below its IPO price, reported that Nubank added 4.2 million customers in the fourth quarter ended Dec. 31, to 74.6 million, up 38%. Deposits increased 55% to $15.8 billion.

And the near-term headwinds confronting institutional lending and capital – and worries about consumer spending – are clear. Affirm is a key example here, where the share is down more than 86% since its IPO. As noted here, for Affirm, a slowdown in consumer demand, and in some cases outright declines in discretionary spending, slowed gross merchandise volume growth to 27% in the second quarter of fiscal 2023, compared to a year ago rate of 115 %. As CEO Max Levchin said on the conference call with analysts, “Sellers and Affirm are concerned with more volume. … We are fundamentally driven by returns and risk management. So we have to maintain the risk frameworks that we have entered into with our capital partners.”

And as the CEO told investors about what’s ahead, “These aren’t transactions that will go away forever, but they’re probably going to remain muted for what we expect to be at least a few quarters.”

For FinTech IPO investors, patience is both a virtue – and perhaps a necessity.

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