FinTech IPO index jumps, but future uncertain
As impressive as Thursday’s (Nov. 10) historic market advance was — including the 8.9% jump in the FinTech IPO Index — a one-day rally is no improvement.
Even with the massive rally, the FinTech IPO group in the past five trading days has rallied just 2.2%, repeating some losses seen during the earnings season, but only slightly. So far this year, the index is 45% lower.
If comments from the earnings season are any indicator, we’re in for a tough time when Thursday’s euphoria wears off. Consumers are becoming cautious, FinTech platforms are seeing pressure on loan volumes and credit ratings are being watched.
Shares in AI lending platform Upstart plunged more than 20% on Tuesday (Nov 8), after the company said rising interest rates and a slowing economy saw the number of new loans halved. Total income fell 31%.
“Higher interest rates and significantly elevated risk in the economy means we are approving approximately 40% fewer applicants than we would have a year ago,” Upstart Co-founder and CEO Dave Girouard told analysts on the company’s Q3 earnings call. The confluence of events led to a 48% decline in lending to $1.9 billion.
Volatile macro and volatile share prices
Affirm’s results showed that Upstart’s pressure is not a one-time problem.
“In light of the current volatile macroeconomic environment and the continued and pronounced decline with a particular major trading partner, we are reducing our outlook for FY’23,” executives wrote in their shareholder letter (the selling partner is Peloton).
A forecast of 20.5 to 21.5 billion dollars in gross merchandise volume was not up to expectations. The implied guidance, management said, is about 30% growth; the previous forecast had been around 40%. The company said in its filings that its 30-day default rates, ex-Pay in 4, were 2.7%, up from 1.5% from the same quarter ended last September. Affirm’s shares are down 22% month to date.
However, with some of the same trends in place, Oportun Financial has risen nearly 50% over the past several sessions. This week, the company reported that revenue rose 57% year over year to $250 million. Members were 1.9 million in the last quarter, 9% higher than a year ago. Total originations were $634 million, down 4% year over year. The 30+ day delinquency rate was 5.4%, compared to 2.8% for the prior year.
“Lowering our approval rates and shifting our focus towards returning members enabled us to reduce early delays and first payment defaults, which ended the quarter below pre-pandemic 2019 levels,” the company said.
Open Lending, which focuses on auto lending technology, said the company facilitated 42,186 certified loans during the third quarter of 2022, compared to 49,332 certified loans in the third quarter of 2021, representing a decrease of 5.8%. Total revenue was $50.7 million, down nearly 14%. Management noted on an earnings call that the most important factor weighing on unit growth and origination for the auto retail sector has been reasonable.
Beyond earnings, we’d be remiss if we didn’t mention that the crypto meltdowns this week surrounding FTX had some impact. Robinhood sank 24% over the past five sessions heading into Friday’s trade. As has been widely reported in recent months, Robinhood had been seen as a potential buyout target for FTX.
