By Daniel Lanyon on Thursday 16 June 2022
With interest rates rising in the UK and US this week, a group of large fintech companies are still eyeing public markets with more than a hint of trepidation.
Wall Street is officially in bear market territory after a more than 20 per cent fall in the S&P 500. For technology stocks, in particular those in the Nasdaq index, the falls have been much more severe. For newly listed fintech stocks, it’s been nothing short of a catastrophe.
The vast majority of those fintech companies that went public in the past few years are seeing their share prices substantially below the price they entered stock markets. Often this is over 50 per cent and in some cases closer to 80 or 90 per cent below the level.
Is this Squarely putting off the next round of fintechs from going public, either through Initial Public Offerings (IPOs) or direct listings?
IP-Oh?
Only a few months back some of the biggest names in the fintech world such Blockchain.com were rumoured to be heading for a 2022 IPO.
Peter Smith, CEO and co-founder of Blockchain.com, said last week at the Money 20/20 conference in Amsterdam the company has been “hiring bankers” but not for an IPO any time soon.
“We could go public if we want it, but we also could not. We have no major shareholder pressure. It's going to be a strategic choice about when we enter the public market,” he said.
The company, he says still has a lot of “optionality” through a strong balance sheet, and cash flow.
“It will really come down to when is the right time for the company to enter the public market. When you look at the public market today…I wouldn't if I could press a button and be public tomorrow. I don't think anyone would.”
So is an IPO totally off for 2022, given the market conditions?
Smith seemed reluctant to fully rule it out either “because I don't know what's gonna happen tomorrow. I don't know what's gonna happen next quarter.”
John Collison, president and co-founder of Stripe, also speaking at the Money 20/20 conference last week dismissed the notion of an imminent stock market listing or funding round for the company.
He says that at present, in the startup fundraising environment “everyone's time horizons are shrinking”.
Again, Collison emphasised the company’s strong fundamentals and growth rates.
A sense that inflation is out of control and interest rates would have to materially rise in order to cool an overheating economy is the likely culprit of that shrinking time horizon and Smith’s reluctance to rule out a 2022 IPO. He’s not the only one.
Neobank N26's CEO Valentin Stalf, said, also at Money 20/20 that the company's goal is to always to be ready for an IPO but given current market conditions "I don't think that there is an IPO coming soon".
"In the next couple of years, I definitely would like to have the option," Stalf said.
Zopa, a UK fintech company that launched in 2005, was highly rumoured to be heading for an IPO in 2022 but recently hinted that it was looking less likely given current market conditions.
Zopa’s CEO Jaidev Janardana told CNBC that markets have to be in a better position for the company to go public.
“The markets are not there — not for fin, not for tech. We will just have to wait for when the markets are in the right place. You only want to do an IPO once, so we want to make sure that we pick the right moment,” he said.
Could yesterday’s decision by the US central to hike rates by 0.75 per cent, the highest single raise since 1994, as well as today’s 0.25 per cent rise by the Bank of England spell a shift in sentiment with the market starting to see inflation as being tameable? Perhaps even some light at the end of the tunnel?
Vincent Mortier, Amundi’s Group Chief Investment Officer, and Monica Defend, Head of the Amundi Institute in a new paper published today say stagflation - low growth as well as high inflations - fears will drive the market for some time.
“Risk assets are likely to remain very volatile, particularly the most indebted companies and those with still excessive valuations,” they said.
Profit premiums
Despite a reticence to confirm one way or other over its IPO or fundraising plans in 2022 Zopa’s CEO Jaidev Janardana said in an interview with AltFi last week that fintech businesses with strong economic fundamentals won’t necessarily struggle to raise new cash.
“We continue to believe that if you have a compelling story, a story that shows not just growth, but also profitability, and the ability to manage responsible growth, then there is capital to be had. I just don't need it,” Janardana said.
While admitting the capital markets are “tough” at present he says, there's a lot of money across public and private markets in hedge funds and other institutions.
This means that profitable companies could even benefit from a premium in terms of pricing new equity deals.
“[They are] sitting in cash but are not paid to keep money in cash. They have to make investments. I think they are being more selective. We feel our story ticks those key boxes of what they're looking for. I do not expect that valuations will be low for us, given this. The other truth is that our valuations have never been frothy,”
Blockchain.com doubled its valuation to $14bn in a Series D funding round led by Lightspeed Venture Partners and Baillie Gifford in March of 2022 suggesting it would need strong support from investors to list.
Smith says his bigger focus at present make sure the company is prepared for such an eventuality, only in the sense that in doing so the company is in good shape regardless of whether it goes public or not any time soon.
“Ultimately, what will make for a great public company is the same thing that makes for a great company, which is having a really great business, having a really engaged team, having customers who love you, having free cash flow, if you can do those things, you'd be a great public company,” he said.
“One thing you have to kind of reconcile with, if you're going to be a public company, you're going to be a public company in the good times, and you're gonna be a public company in the bad times. And for me, my focus is very much on where are we in 2030. For me, this is a life mission. This isn't a, how do I make the most money between now and 2024.
In this, he says, the short-term volatility of the NASDAQ doesn't matter that much.
