Fintech Earnings: Key Takeaways from Last Week

Fintech Investment Surge and Recent Earnings

Globally, investors are significantly increasing their capital allocation to fintech startups. This trend is demonstrably justified, particularly when considering the financial performance reported by publicly traded companies within the sector during the third quarter.

Recent earnings disclosures reveal numerous fintech companies exhibiting robust operational performance.

This has positively impacted investor sentiment and driven increases in stock values.

Private Market Implications

For privately held companies, the success of their publicly listed counterparts is highly motivating.

Strong performance from comparable publicly traded firms can facilitate continued access to venture capital for emerging startups.

Record-Breaking Investment

2023 is proving to be a landmark year for fintech across both public and private markets.

After reaching a peak of $52.9 billion in private funding in 2018, global fintech investment experienced a period of stabilization in 2019 ($46.5 billion) and 2020 ($48.4 billion), as reported by CB Insights.

However, through the first three quarters of the current year, global fintech startups have collectively secured $94.7 billion in funding.

The Rise of Unicorns

This substantial influx of capital has resulted in the emergence of numerous new unicorn companies.

Investors are betting on continued substantial growth potential within the fintech landscape.

Third-quarter results from companies such as Affirm, SoFi, and Marqeta reinforce the belief that significant opportunities remain for innovation and disruption of established players and legacy systems.

Analyzing Key Results

We will now delve into a detailed analysis of successful fintech results from companies operating in the Buy Now, Pay Later (BNPL), consumer finance, property technology (proptech), and corporate finance sectors.

Following this examination, we will explore potential implications for startups within these specific subsectors.

Finally, we will address instances of fintech companies that did not meet earnings expectations during the third quarter.

Robust Performance in Consumer Lending

Affirm, a publicly traded buy now, pay later (BNPL) provider, exceeded investor projections during the initial quarter of its fiscal year 2022. Consequently, the fintech company has revised its revenue forecast upward for the ongoing fiscal year.

During the quarter, Affirm experienced a 124% increase in active users of its BNPL service, reaching 8.7 million. Furthermore, transaction frequency per active user rose by 8%, totaling 2.3 transactions. A significant expansion occurred in the number of active merchants utilizing the platform, growing from 6,500 to 102,000, largely due to the integration of Shop Pay Installments by Shopify merchants.

The company also announced a broadened collaboration with Amazon, designating Affirm as the exclusive BNPL option at the e-commerce leader’s checkout. This development led to an improved revenue outlook, increasing from a previously estimated $1.160 billion to $1.190 billion, to a new range of $1.225 billion to $1.250 billion.

This positive news prompted investors to increase their valuation of the company’s stock. Affirm’s revenue for the calendar third quarter reached $269.4 million, surpassing the anticipated $248.2 million. The company believes this strong performance isn’t isolated.

Initially projecting a total Gross Merchandise Volume (GMV) of $12.45 billion to $12.75 billion for fiscal 2022, Affirm has now raised its guidance to a range of $13.13 billion to $13.38 billion.

Affirm operates within a highly competitive BNPL landscape, facing rivals such as Klarna, which possess substantial funding. It also contends with Square, which acquired a BNPL company for $29 billion. Despite escalating competition, Affirm’s increased guidance is a positive indicator for the BNPL sector as a whole, particularly given its unique partnerships.

SoFi also demonstrated strong performance in consumer lending, reporting Q3 net revenues of $270.0 million ($277.2 million adjusted), exceeding expectations of $251.6 million. A substantial portion of this revenue, $210.3 million ($215.5 million adjusted), originated from its lending products.

According to SoFi, “[r]ecord volumes in both personal and home loans, increasing by 166% and 26% respectively, successfully compensated for the decrease in student loan volume.” Considering the positive results from Affirm, it’s unsurprising that other consumer lending products are also experiencing robust growth.

SoFi has diversified its business beyond its origins in student loans, offering a range of consumer financial services and fintech infrastructure through its acquisition of Galileo. However, its revenue remains largely dependent on consumer lending, making this the primary focus for analysis.

The strong results reported by both Affirm and SoFi highlight a considerable consumer demand for various forms of credit. This is encouraging news for startups operating in the lending market, as well as for infrastructure providers like Sivo.

iBuying Continues to Yield Profits, for Certain Companies

The unexpected withdrawal of Zillow from the iBuying market caused considerable surprise among investors. However, Opendoor is demonstrating robust performance within the same sector.

The company’s third-quarter financial results exceeded projections, reporting revenues of $2.27 billion, compared to the anticipated $2.01 billion.

Furthermore, Opendoor’s forward-looking guidance, estimating revenues between $3.1 billion and $3.2 billion, surpasses previous expectations of $2.92 billion.

The attractiveness of the current market conditions has led Opendoor to accelerate its financial planning.

In their earnings report, the company expressed confidence in reaffirming the projections initially set for the coming three years, effectively advancing their original timeline by two years.

Offerpad, another key player in the iBuying landscape, has also reported substantial gains.

Third-quarter revenues increased by 190% to $540.3 million, while gross profit experienced a 169% rise to $53.1 million, when contrasted with the figures from the previous year.

Key Performance Indicators

• Opendoor’s Q3 revenue: $2.27 billion (vs. expected $2.01 billion)
• Opendoor’s Q3 guidance: $3.1 - $3.2 billion (vs. expected $2.92 billion)
• Offerpad’s Q3 revenue increase: 190% to $540.3 million
• Offerpad’s Q3 gross profit increase: 169% to $53.1 million

These results indicate that, despite Zillow’s departure, the iBuying model remains a viable and profitable venture for companies like Opendoor and Offerpad.

Marqeta Demonstrates Strong Performance in Fintech Infrastructure

Marqeta, a provider of developer-focused tools for card issuing and payment processing, has reported financial results exceeding expectations for the recent quarter.

The company’s success is particularly noteworthy as growth-stage fintech infrastructure businesses, such as Stripe and Plaid, approach potential public offerings.

Marqeta’s performance could demonstrate the viability and profitability of an API-first, developer-centric business model.

Revenue and Processing Volume Increase Significantly

Marqeta’s revenue experienced substantial growth, reaching $131.5 million, a considerable increase from the $84.3 million reported in the same quarter last year.

This figure surpassed analyst predictions of $119.2 million for the quarter.

The revenue growth was fueled by a rise in total processing volume, which climbed to $27.6 billion, up from $17.2 billion in the year-ago period.

Losses Narrow as Company Expands

During the third quarter, Marqeta successfully reduced its net loss.

The company reported a net loss of $45.7 million, equating to $0.08 per share, an improvement compared to the $12.3 million loss, or $0.10 per share, recorded in the previous year’s third quarter.

Customer Acquisition and BNPL Market Growth

Marqeta’s positive results were driven by both the acquisition of new clients, including Coinbase, and increased utilization from existing customers, such as Uber.

The company specifically highlighted significant growth within the Buy Now, Pay Later (BNPL) market, reporting over 300% year-over-year growth.

Marqeta collaborates with leading BNPL providers, including Affirm, Klarna, Sezzle, and Afterpay.

• Key Takeaway: Marqeta’s strong performance underscores the growing demand for robust fintech infrastructure.
• Growth Driver: Expansion in the BNPL sector is a significant contributor to the company’s success.

The Continued Volatility of the Cryptocurrency Market

Recent financial reports from Robinhood and Square indicated disappointing earnings, with both companies attributing the downturn to reduced activity in cryptocurrency trading. Consequently, it was anticipated that Coinbase, the leading cryptocurrency exchange in the United States, would similarly experience the impact of diminished trading levels.

The platform witnessed a decrease in the number of active users, declining from 8.8 million in the second quarter to 7.4 million in the third. Concurrently, the total trading volume experienced a significant drop, moving from $462 billion to $327 billion over the same period.

Coinbase's Reliance on Crypto Trading

Prior to the release of its earnings report, Coinbase had already cautioned investors about a projected decrease in trading volume for the third quarter. However, a key distinction exists between Coinbase and its competitors, Robinhood and Square.

Unlike those firms, Coinbase lacks substantial revenue streams outside of cryptocurrency. The company’s financial performance is therefore heavily dependent on the performance of the crypto market, which is known for its inherent instability and unpredictability.

This makes forecasting future performance particularly challenging, as external factors can significantly influence trading volume and overall profitability.

Understanding the Decline in Trading Activity

• A reduction in user engagement was observed.
• The overall volume of trades decreased substantially.
• Coinbase's business model is uniquely focused on crypto.

The current market conditions highlight the risks associated with a concentrated business model in the cryptocurrency sector. Future success for Coinbase will likely hinge on its ability to navigate this volatile landscape and potentially diversify its offerings.