Financial downturn and market sales Take a toll on Fintech Fundraising, valuation
2021 was a record year for fintech financing and unicorn. Globally, fintech companies attracted a record $ 132 billion last year, more than double the 2020s. Increasing financing activity pushed value valuations to new heights, so that 157 fintech companies achieved unicorn status.
But this year’s rise in inflation, rising interest rates and economic downturn have triggered a meltdown in the stock market. The New York Nasdaq, which contains many of the world’s most valuable listed technology companies, has fallen 32% from the record in November 2021, and Ark’s Innovation Exchange Traded Fund (ETF) (ARKK), which invests in disruptive innovation. companies, has fallen more than 50% since the beginning of 2022.
This landscape has led to a downward trend in private company acquisitions and a drop in start-up ratings as investors become more sensitive to risk assets and less patient with unprofitable firms, according to a new report from Morningstar company Pitchbook.
With investors’ patience running out, public fintech companies are likely to be pressured to focus on profitability by seeking new revenue streams, cutting costs, closing down money-losing businesses and even seeking an acquirer. Start-ups can meanwhile be enticed to remain private for a longer period of time, as they focus on investing in growth rather than profitability, the report states.
Insurtech shares plummet 80%; neobanks, brokers and crypto fall 59%
The document, entitled Fintech Q2 Public Company Valuation Guide, looks at stock trends, revenue forecasts and market values of key listed fintech companies to understand the potential impact of public companies in the private markets.
According to the analysis, listed fintech companies in insurtech, neobanking, online brokers and cryptocurrencies have had a massive hit this year.
PitchBook’s insurtech cohort, which consists of six insurtech companies, plunged a staggering 80% in the past year. All of these companies are expected to generate negative earnings per share (EPS) through 2024.
Similarly, in PitchBooks’ neobanking, broker and crypto cohort, which consists of five companies, shares have fallen 59% over the past 90 days. Four out of five of these companies are expected to generate negative EPS through 2024.
Falling stock prices and poor earnings expectations could push investors to insurtech companies, neo-banks, brokers and crypto-sellers, to restructure, especially by reducing the number of employees and outsourcing jobs, or to looking for an acquirer, predicts PitchBook.
This will probably affect the valuation of late-stage start-ups in these categories, such as the homeowners insurance provider Kin Insurance, the health insurance start-up Bind, the cryptocurrency derivative exchange FTX and the online broker eToro, the report notes.
Although high-growth payment and infrastructure companies have fallen by 40% in the last 30 days – as have insurance companies and neobanks, online brokers and crypto companies – four of the six companies in this category are already generating positive EPS, giving a encouraging prospects for stock prices in the near future.
“We believe that public investors in payment and fintech companies are likely to be more patient as many older payment companies generate attractive margins and benefit from operational leverage,” the report said. “This is in contrast to neobanks and insurtech, which are untested in their ability to generate consistent profits.”
Funding is drying up
Global market sales and the economic downturn have changed the financing environment for startups dramatically.
In Q2 2022, $ 20.4 billion was raised on global fintech financing, the lowest amount for quarterly financing and agreements since Q4 2020, according to CB Insights.
As belts tighten, many fintech companies struggling to raise financing were forced to accept lower valuations in order to stay afloat. In June, the London-based payment service provider SumUp raised funding worth 8 billion euros, which reduced the value by 60% from earlier this year.
Similarly, the Swedish buy now, pay later (BNPL) giant Klarna ended a round of USD 800 million this week alone worth USD 6.7 billion, down 85% from USD 45.6 billion a year ago. In May, Klarna CEO Sebastian Siemiatkowski announced that it would lay off 10% of its global workforce, citing market restrictions. As many as 700 people will be affected.
Selected photo credit: Freepik
