Revolut's $33B Valuation: A Look at 2020 Financial Performance

Revolut Secures $800 Million in Series E Funding

Breaking news this morning confirms that Revolut, a consumer fintech company headquartered in the U.K., has successfully closed a Series E funding round. The investment totals $800 million, resulting in a company valuation of $33 billion.

These numbers are particularly noteworthy, not simply because of their magnitude, but also due to the significant contrast they present when compared to Revolut’s previous funding activities.

Context: A Dual Focus for The Exchange

Occasionally, The Exchange, TechCrunch’s column covering markets and startups, identifies two distinct topics deserving of exploration within a single day. Today represents one such instance.

Readers can find our earlier analysis concerning the buy now, pay later (BNPL) startup market and Apple’s recent entry into the BNPL sector here.

Now, our attention shifts to the realm of neobanks.

As Ingrid Lunden of TechCrunch reported earlier regarding this development:

The news is truly remarkable.

Lunden’s reporting also included an examination of the company’s evolving financial performance, drawing upon Revolut’s published 2020 results. This analysis will delve further into those financial details and usage statistics provided by the fintech giant.

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Analyzing Revolut’s Financial Trajectory

The data reveals a company demonstrating substantial improvements in its financial standing. However, some areas concerning recent customer acquisition remain less transparent.

A clearer understanding of the company’s growth trajectory is still developing.

Growth and Financial Performance

Let's revisit Revolut’s 2020 performance, including key usage statistics available as of March 31, 2021. An updated review of their financial standing reveals the following:

• A 57% increase in revenue, rising from £166 million in 2019 to £261 million in 2020.
• Gross profit experienced growth of £123 million in 2020, a 215% improvement over 2019 figures.
• The gross margin reached 49% in 2020, representing nearly a doubling according to Revolut.
• An operating loss of £122 million was recorded in 2020, compared to £98 million in the previous year.
• Total loss amounted to £168 million in 2020, an increase from £107 million in 2019.
• The company had 15 million retail customers as of March 31, 2021.
• A total of 150 million monthly transactions were processed by March 31, 2021.

The company’s revenue growth in 2020 was substantial. However, the most significant achievement was the expansion of its gross margin. By nearly doubling gross margins alongside revenue expansion, Revolut’s gross profit surged by an impressive 215% last year.

Despite this positive trend, the company still faced considerable and increasing losses throughout the year. Although gross profit saw a significant boost – the portion of revenue remaining after covering operating expenses – operating losses increased by over 24%, and the total loss expanded by a more pronounced 57%.

Considering recent company announcements, Revolut has shared two updated usage metrics that can be compared to the data released with its 2020 financial report from March 31, 2021:

• The company now reports “more than 16 million customers.”
• It currently facilitates “more than 150 million transactions each month.”

Has Revolut experienced growth from 15 million to 16 million customers since March 31? Not exactly. The 15 million figure specifically represented retail customers, separate from the 500,000 business customers reported at that time. The new 16 million customer count is therefore largely unchanged. Similarly, the 150 million monthly transaction volume remains consistent with the March data.

This suggests two possibilities: Revolut hasn’t experienced customer growth in Q2 2021, or the company is deliberately withholding detailed data by presenting an aggregated customer figure, effectively restating the previous metric.

Given Revolut’s recent valuation increase, the latter scenario appears more probable; private companies often maintain discretion regarding data disclosure when not required. Revolut may have chosen to strategically manage information release.

Does this leave us without insight? Not entirely. Revolut’s 2020 report included a helpful quarterly breakdown of its financial performance, which provides valuable context.

For instance, here’s a visualization of the company’s gross profit over time:

Observe the substantial increase in gross profit, progressing from a run rate of £64 million in Q1 2020 to £204 million in Q4 2020. Similar improvements were evident across other metrics when analyzed on a quarterly basis. The following chart illustrates the company’s gross margins and adjusted losses over time:

The quarterly gross margin chart is particularly noteworthy.

Considering the company’s reported trend from Q2 to Q4 of 2020 – excluding the Q1 to Q2 jump as an exceptional gain – it’s reasonable to project that Revolut could have achieved another 5% increase in its gross margin in Q1 2021, and potentially further gains in the second quarter. In simpler terms, maintaining even slowing growth in gross margins throughout H1 2021 could have brought the company’s gross margins to 70% by the end of June.

This represents revenue quality comparable to SaaS businesses, the type of gross margins that investors highly value, potentially contributing to the substantial new funding round.

A similar principle applies to the company’s adjusted losses. From a run-rate of -£220 million in Q1 2020 to -£24 million in Q4 of the same year, Revolut rapidly reduced losses from alarming levels relative to its revenues to a minimal negative figure. If the company sustained its 2020 performance on this metric, its valuation increase becomes more understandable; Revolut could have potentially reached adjusted profitability in either Q1 or Q2 2021, based on its 2020 quarterly results.

Regarding the changes to its business, Revolut announced the first $500 million of its $580 million Series D funding in February 2020. During that quarter, the company reported 29% gross margins and adjusted losses of £55 million. If the company was valued at $5.5 billion at that time, a significantly higher valuation with substantially improved gross margins, profitability, and proven revenue growth is justifiable.

Determining the precise extent to which the company’s new $33 billion valuation aligns with its fundamentals is a matter for individual assessment. From my perspective, the available data suggests that the company’s improving financial results support an appreciation in its value.