Fintech earnings bonanza as Coinbase and Upstart grow sales 11-fold

Coinbase employees spray champagne during the company’s initial public offering (IPO) in front of the Nasdaq MarketSite in New York, the United States, on Wednesday, April 14, 2021.

Michael Nagel | Bloomberg | Getty Images

If you still had doubts about fintech’s growth, take a look at earnings reports for two newly-listed companies Tuesday night.

The Coinbase cryptocurrency exchange reported a 12-fold increase in sales over the previous year to $ 2.23 billion. Online lender Upstart Holdings said sales increased 11 times year over year to $ 194 million.

These numbers are staggering.

For companies of this size, an annual doubling is necessary, which is in the right place with the right team at the right time and often means a substantial capital contribution to acquire new customers. The most successful technology companies of all time recorded no four-digit growth rates during their time on the stock exchange.

Amazon’s biggest growth was around 300% shortly after going public in 1998. Google’s revenue doubled for the first few quarters in the market in 2004 and 2005 before subsiding. Facebook never got into three-digit numbers after going public.

Even in the pandemic-driven 2020, when new users flocked to digital work and training products, Zoom reached 369% and Peloton’s 232%.

What is happening in finance is different, and Coinbase and Upstart are the proxy in the public market for some of the biggest changes around the world.

Large banks and investment firms have lost control of the consumer. Loans are available through a variety of easy-to-use online services. Start-up banks and credit card companies are killing the fees. As well as app-based brokers and trading platforms. Valuations are astronomical in the public and private markets.

Square, which went public in 2015 as a small business payment service, is now valued at $ 125 billion and has a portfolio of business, consumer, and money transfer services.

Last week Square announced it was spending $ 29 billion on shares in Afterpay, an Australian provider of point-of-sale credit for retailers. This is one of the biggest tech deals of all time and more than Microsoft, Google, Facebook, Amazon, Apple, Oracle, Cisco or Intel have ever spent on a deal.

“After Square bought Afterpay, there is no other tech space as hot as fintech,” said Eric Jackson, a tech investor and president of EMJ Capital.

Alongside Square, Upstart (which he owns), and Coinbase, Jackson named Plaid, whose back-end software links bank accounts with fintech apps, and online lender SoFi as some of the most dynamic companies.

“Of course I’m biased and I think Upstart is the best,” he said.

He made a lot of money with it. Upstart went public for $ 20 a share in December, and Jackson said he has owned it since going public. After rising 24% in expanded trading on Tuesday, the stock is now hovering around $ 160, valuing the company at over $ 12 billion.

Founded in 2012 by former Google executive David Girouard, Upstart uses machine learning to fund consumer credit and makes its technology available to banking partners who can then better target customers. Girouard said on the conference call that 25 banks and credit unions are now using his technology and there is “a growing list of lenders in our pipeline for the second half of 2021”.

Online lending boom

Upstart said sales were up 60% quarter over quarter in the second quarter, and that June was the first month it exceeded $ 100,000 in loans and $ 1 billion in issuing volume on its platform.

Comparing the second quarter’s results to the same period last year isn’t entirely fair, given that at that point in 2020 the country was in the early stages of the pandemic and much of the economy was closed. Upstart said in its prospectus that many banking partners have stopped origination, which has led to a decline in sales.

CFO Sanjay Datta reminded investors on the conference call.

“We will not leave out any indications of year-on-year growth rates for our income statement this quarter, as these are all well over 1,000% due to the lessening of the pandemic effects of last year,” said Datta.

Even if you pick Upstart’s best quarter from last year, sales are up over 200%. Net income of $ 36.3 million was over $ 10.1 million for the previous quarter that was the most profitable quarter.

Coinbase is all about the historical growth in crypto investments, even as prices have become more volatile.

The volume of trade increased in the second quarter from $ 28 billion a year ago to $ 462 billion. Assets on the platform reached $ 180 billion versus $ 26 billion. Net income was $ 1.6 billion, nearly 4,900% more than last year.

“We’ve had amazing growth in terms of users added to the platform, assets on the platform, revenue and pretty much everything,” said Brian Armstrong, Coinbase CEO, on the conference call.

Coinbase went public in April through a direct listing. With a fully diluted market cap of around $ 77 billion, the valuation has increased nearly tenfold since 2018.

Crypto spreads wealth

Crypto trading was also one of the biggest drivers for Robinhood, which went public in July and is now worth over $ 45 billion, up from about $ 12 billion a year ago. Robinhood has not yet reported any results as a publicly traded company, but its prospectus states that sales were up 309% in the first quarter.

Fintech companies are also massively valued in the private markets. According to research and analysis firm CB Insights, eight of the top 20 most valuable private technology companies are in the financial services sector.

Payment company Stripe was last valued at $ 95 billion. Sweden’s Klarna, a competitor to Afterpay and Affirm in point-of-sale lending, is valued at $ 45.6 billion. Revolut, a UK money transfer and investment app, is valued at $ 33 billion and Brazilian digital banking services company Nubank is valued at $ 30 billion.

Further down the list, online banking provider Chime most recently raised money valued at $ 14.5 billion and Plaid, which Visa was looking to buy before the deal was scrapped, is valued at $ 13.4 billion.

There can be foam. And the hype in some areas is certainly way ahead of reality.

But as the financial results show, consumer expectations and the flow of money are changing rapidly. There’s a reason JPMorgan Chase CEO Jamie Dimon warned shareholders in his annual April letter that “banks are playing an increasingly smaller role in the financial system”.

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