We’re close to peak pessimism around fintech
PayPal’s woes indicate the market doesn’t mind kicking fintech while it’s down
PayPal’s shares are off around 11% this morning despite the company reporting better-than-expected revenue and profit in the first quarter. The company also raised its forecast for the year, though that was apparently not enough to sate investors.
But frankly, it isn’t shocking to see another well-known fintech company losing value in today’s market. Indeed, fintechs haven’t fared well at all even when you account for the broader dip in valuations at tech companies.
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It almost feels unfair. Comparing data from F Prime’s fintech index with valuation marks for SaaS and cloud companies in terms of historical revenue multiples, it appears that fintech companies are being clobbered a little too much.
So why are fintechs today worth less than they were before the recent venture boom? Why are cloud companies faring better?
Another way to approach this would be to consider whether investors in recent years were farther off the mark when valuing fintech companies than they were with other software companies.
Let me explain: At the end of 2015, fintech companies expanding at a rate of 40% or less had average multiples of 6x to 7x their trailing revenues, per F Prime. Through to 2020, fintechs that weren’t doing as well saw their multiples expand to around 9x their revenues, while those expanding at 40% or faster saw their multiples expand to around 17x from around 10x revenues.
Then we had a boom and valuations went nuts for a bit. However, after the good times of 2020 and 2021, fintech valuations have been in free fall. At the end of Q1 2023, fintech companies expanding at 20% or slower per year have seen their own multiples fall to just under 2x trailing revenues, while those that were expanding at 20% to 40% or faster are worth around 4x their trailing revenues.
