FinTech index cuts for half a year with ‘busted IPOs’
The blood that hit the FinTech IPO index last year was almost absolute.
One number might say it all, at least in shorthand: The index ended a terrible, not-good, let’s-put-it-in-the-rearview mirror year with a loss of more than 51%. That was roughly in line with the 52% Global X FinTech ETF decline noted by The Wall Street Journal and significantly worse than the 33% slide in the NASDAQ, which is a broad measure of technology stocks. The stocks in our index are equally weighted, and many have microscopic market capitalizations, so every penny of fleeting fluctuations in a share price, up or down, can have an overall impact.
And the deeper you go, the worse the data looks: Of the more than 45 names we’ve tracked, only two managed to escape the clutches of liquidating as “busted IPOs,” where the shares have traded below their original offering prices. We’ll mention them here, right at the start: Bill.com ended the year at $109, where it went public at $22 back in 2019. And Futu Holdings, at $38, is leagues above its initial offering of $12, also in 2019.
For the FinTech disruptors, the halcyon days of 2019 and the pandemic seem long ago and far away.
There are names in our pantheon that fell more than 90% in 2022 – a club that no one wanted to be a part of, but which included Affirm, Opendoor and Upstart. MoneyLion fell by more than 82%.
The Disruptors, Disrupted
The platform models may have promised disruption, but the past 12 months have shown how macro headwinds can be the headwinds that disrupt the promise of these models and prove that profits will continue to be elusive.
For the names mentioned above, the specter of rising interest rates and inflation does two things: They force the key markets – home buyers, consumers and home sellers – to pull back on their transactions, leading to slowing growth (or outright decline) in the top lines. It will of course be more expensive to operate. And for the investors (retail and institutional) who put up the capital (direct and in the markets) that underpin these models, the race is on to find returns elsewhere.
It’s a perfect storm that can be told in a few stories and data points that were variations on a theme in 2022, where companies remained confident about long-term prospects, investors remained skeptical about the same, preferring to shoot first and ask questions later. Post-earnings declines of double-digit percentage points were the norm. Affirm, for example, saw its shares fall 15% in the wake of an earnings report that saw delays tick up and guidance become more conservative, although management has said profitability is on target in the 2024 financial year. As mentioned in this space at the time, a forecast of $20.5 billion to $21.5 billion in gross merchandise volume fell short of expectations. The implied guidance, management said, is about 30% growth; the previous forecast had been around 40%.
And the damage is not limited to American firms or consumer-facing companies. Triterras, which lost about 48% of its value last week, continues to be buffet by the company announcements that trade credit insurance and corporate trade finance have been adversely affected in a tough macro climate.
Crypto meltdowns – and specifically FTX’s continued reverberations – also had their impact, particularly on Robinhood. As reported last week, FTX founder and former CEO Sam Bankman-Fried told a court before he was arrested in the Bahamas that he and FTX co-founder Gary Wang borrowed $546 million from Alameda Research to capitalize Emergent Fidelity Technologies. And it was Emergent who later bought shares in Robinhood.
The latter’s shares entered the new year at a little more than $8 a share, while the company had gone public at $38.
The jury is still out on what comes next. The first day of trading in 2023 was no respite, as shares fell slightly. Capital markets will be safe, inflation remains high, consumer spending may zigzag a bit, and we’re heading into another earnings season in just a few weeks.
PYMNTS data: Why consumers are trying digital wallets
A PYMNTS study, “New Payments Options: Why Consumers Are Trying Digital Wallets” finds that 52% of US consumers tried a new payment method in 2022, with many choosing to try digital wallets for the first time.
