Flywire IPO: Will the Fintech Unicorn Soar?

Flywire Announces Initial Public Offering

Today marks a significant event for companies in the financial technology sector. Flywire, a Boston-based company that has consistently attracted substantial venture capital funding, has officially submitted its filing for an initial public offering (IPO).

Flywire operates as a global payments provider and has secured over $300 million in funding as a startup, as reported by Crunchbase. Its most recent funding round, a $60 million Series F, was completed just last month.

Valuation and Market Position

While the company’s current valuation remains undisclosed, PitchBook data suggests that Flywire was valued at $1 billion post-money following its $120 million funding round in February 2020.

This IPO represents a debut for a fintech unicorn. It’s a noteworthy start to the week, especially considering expectations that Robinhood might be the next company to go public.

Recent activity in fintech venture capital has been particularly strong, making the Flywire IPO a closely watched event. The outcome of this offering could significantly influence the speed of future fintech exits and the overall valuations of fintech startups.

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Analyzing Flywire’s Business

Our focus this morning will be a comprehensive analysis of Flywire. We will begin by detailing the company’s core functions and identifying its key competitors.

Following this, we will examine its financial performance, with a particular emphasis on assessing the quality of its revenue, its overall economic health, and its potential for future growth.

Investor Landscape and Potential Returns

Finally, we will explore the company’s valuation and identify the venture capital firms poised to benefit from its public offering. Several firms have invested in Flywire, including:

• Spark Capital
• Temasek
• F-Prime Capital
• Bain Capital Ventures
• Goldman Sachs

These firms, along with others, are anticipating a successful exit from their investment in Flywire. A detailed investigation into the company’s prospects is now underway.

Understanding Flywire: A Global Payments Provider

Flywire operates as a global payments company, positioning itself as a “leading global payments enablement and software company,” as detailed in its S-1 filing. The company anticipates significant expansion within its market, noting that despite advancements in payments technology for retail and e-commerce, substantial sectors like education, healthcare, travel, and B2B payments remain in early stages of digital transformation.

This perspective mirrors the rationale behind the high valuations seen with companies such as Stripe and Finix, which also focus on payments solutions.

Flywire’s Core Offerings

According to its S-1 filing, Flywire’s product suite comprises three key components. Firstly, a payments platform that streamlines global payment flows, accommodating multiple currencies, payment methods, and options. Secondly, a payment network leveraging “global, regional and local banking partners” to facilitate payment acceptance and settlement in over 240 countries and territories, and across more than 130 currencies. Finally, a customizable software package designed for industry-specific applications.

This combination of capabilities positions the company as a competitor to any global payments provider, although its focus is primarily on serving businesses rather than individual consumers. This targeted approach narrows its competitive field.

Financial Performance Overview

Analyzing Flywire’s financial statements reveals growth from 2019 to 2020, accompanied by a reduction in net losses during the same period. This trend is a positive indicator. Further examination of the most recent quarter demonstrates a similar growth trajectory, although with a slight resurgence in net losses.

Revenue growth for Flywire was 38.8% in 2020 compared to 2019. The first quarter of 2021 saw a growth rate of just over 37.5% year-over-year. While growth is decelerating, the change is minimal.

Profitability Analysis

When share-based compensation costs are excluded, 2020 shows a slight improvement in profitability compared to 2019. Moreover, Q1 2021 demonstrates a further shift towards profitability relative to the same quarter in the previous year. Therefore, the company’s reported net loss is primarily relevant to investors sensitive to stock dilution.

This is reflected in the company’s adjusted profitability metrics, as shown below:

Gross margins improved in 2020 but have since stabilized. The company’s Q1 2021 Total Payment Volume (TPV) run rate reached approximately $11.5 billion. This figure is expected to increase throughout the year, and the company is projected to surpass its 2020 TPV results by a significant margin.

Revenue Breakdown

Flywire’s revenue is generated from two primary sources: Transaction revenue and platform/usage-based fee revenue. Transaction revenue, representing fees for payment processing, constitutes the majority of the company’s income, accounting for $32.4 million of its $45 million in Q1 2021 revenue.

However, this segment is growing at a slower pace (28.6%) than the platform revenue, which includes fees for platform utilization, subscription services, and other offerings, experiencing a 68% growth rate in the first quarter of 2021.

The faster growth rate of the smaller revenue stream within the larger business is a favorable sign.

Impact of COVID-19

Flywire addressed the impact of COVID-19 on its business in its filings:

The company’s dollar-based net retention rate experienced a slight decline, but logo churn remained limited. This suggests resilience – the company could have achieved even greater growth without the pandemic’s impact. As vaccinations facilitate recovery in certain regions, the net retention rate may return to pre-pandemic levels, potentially accelerating growth.

IPO Considerations

The current market conditions, with a strong stock market and high demand for fintech companies, make this an opportune time for Flywire to go public. The company’s business is poised to regain its previous momentum, potentially leading to a successful first year as a publicly traded entity. Even with the challenges posed by the pandemic, its financial performance is strong enough to support an IPO.

Determining a comparable company for valuation is challenging, but using Adyen’s price/sales ratio of approximately 17.2x (based on trailing revenue), Flywire could be valued around $2.26 billion, based on its 2020 revenues. This is a preliminary estimate, and the actual valuation may vary.

Further updates will be provided as they become available, with Q2 2021 potentially marking a significant period for fintech IPOs.