Investors may be bracing for an initial public offering (IPO) renaissance, but if the PYMNTS FinTech IPO Index is any indication: Caveat emptor.
There is a growing demand for conclusion of agreementsfor startups to be acquired for the purpose of buying rather than building operations, and for FinTech companies, in particular, to go public as they raise capital.
Monzo stands out here, having raised more than $430 million in a funding round this month. Nothing may be among the companies that will publicthus providing investors with an additional opportunity to play in the ‘buy now, pay later’ (BNPL) space. Klarna is also in the IPO BNPL is expected to be a key growth sector in the months and years ahead, given the resilience of consumer spending and, as PYMNTS Intelligence has found, the appeal of stretch. payments Over time, this technology has reached consumers across all income brackets.
But as of early March, of the nearly four dozen fintechs tracked by PYMNTS Intelligence, only five companies were trading above their offering price. Despite the 55% rise in the FinTech IPO Index in 2023, absolute returns to date have been uneven at best.
Only two of them — Futu Holdings And BILLhave recorded significant gains since their market debut.
The overall trend is down, with most companies down by double-digit percentage points. Many companies are trading for pennies, flirting with losses of 80% and more than 90%.
Falling stock prices mean that market capitalizations are now more acceptable for acquisitions. It is conceivable that a company with a market capitalization of $48 million, such as Katapultcould be a simple extension for a larger industrial player.
But when it comes to the metrics Wall Street values—the simplest being the price-to-earnings ratio—the devil is at least in the details. Of the 44 names in the pantheon, only 16 have any earnings to speak of. Taking a simple average of those earnings, the ratio is 58x recent earnings. The price-to-sales ratio, at about 11x, beats the tech-heavy NASDAQ’s roughly 5x ratio. The ratios show that investors are paying a premium for growth, even if it doesn’t translate into earnings.
However, in the payments and payment technology space, rumors are already circulating about deals being made (even if the rumors are not deals being made). Nuveiwith a market capitalization of $3 billion, is reportedly in talks with Advent for private equity redemption. Nuvei is profitablehaving recorded an operating profit of $117 million on sales of $1.2 billion in 2023.
