The carnage that hit the FinTech IPO Index last year was nearly absolute.
One number says it all, perhaps, at least in shorthand: The Index wound up a terrible, no good, let’s-put-it-in-the-rearview mirror year with a loss of more than 51%. That was roughly in line with the 52% Global X FinTech ETF decline noted by The Wall Street Journal and significantly worse than the 33% slide in the NASDAQ, which is a broad measure of tech stocks. The stocks in our Index are equally weighted, and many have microscopic market caps, so each penny of volatile swing in a share price, up or down, can have an outsized impact.
And the deeper you go, the worse the data look: Of the more than 45 names we’ve tracked, only two managed to escape the clutches of winding up as “busted IPOs,” where the stocks have traded below their initial offering prices. We’ll name them here, right at the start: Bill.com ended the year at $109, where it had IPO’ed at $22 back in 2019. And Futu Holdings, at $38, is leagues above its $12 initial offering, also in 2019.
For the FinTech disruptors, the halcyon days of 2019 and the pandemic seem long ago and far away.
There are names in our pantheon that fell more than 90% in 2022 — a club that no one wanted to be part of, but which included Affirm, Opendoor and Upstart. MoneyLion plummeted by more than 82%.
The Disruptors, Disrupted
The platform models may have promised disruption, but the past 12 months have shown how macro headwinds can be the headwinds that disrupt the promise of those models and prove that profits will continue to be elusive.
For the names mentioned above, the specter of rising rates and inflation do two things: They force key markets — the homebuyers, the consumers and the home sellers — to pull back on their transactions, leading to slowing growth (or outright declines) in top lines. It becomes more expensive to operate, of course. And for the investors (retail and institutional) that put up the capital (directly and in the markets) that underpin these models, the race is on to find yield elsewhere.
It’s a perfect storm that can be told in a few stories and data points that were variations on a theme in 2022, where the enterprises remained confident of long-term prospects, investors remained skeptical of the same, preferring to shoot first and ask questions later. Post-earnings declines of double-digit percentage points were the norm. Affirm, for example, saw its shares slip by 15% in the wake of an earnings report that saw delinquencies tick up and guidance become more conservative, though management has said profitability is in sight in fiscal year 2024. As noted in this space back then, a forecast of $20.5 billion to $21.5 billion in gross merchandise volume fell short of expectations. The implied guidance, management said, is about 30% growth; the previous forecast had been around 40%.
And the damage is not limited to U.S. firms or consumer-facing companies. Triterras, which lost roughly 48% of its value last week, continues to be buffeted by company announcements that trade credit insurance and trade finance for enterprises has been adversely impacted in a tough macro climate.
Crypto meltdowns — and specifically FTX’s continued reverberations — had its impact too, most notably on Robinhood. As reported last week, FTX founder and former CEO Sam Bankman-Fried told a court before he was arrested in the Bahamas that he and FTX co-founder Gary Wang borrowed $546 million from Alameda Research to capitalize Emergent Fidelity Technologies. And it was Emergent that later bought shares in Robinhood.
The latter’s shares came into the new year at a bit more than $8 a share, whereas the company had come public at $38.
The jury’s still out as to what comes next. The first day of trading in 2023 was no respite, as stocks traded down a bit. The capital markets will be sure bet, inflation’s still high, consumer spending may zig and zag a bit and we’re headed into the teeth of another earnings season in just a few weeks.