Will Bumper Crop of IPOs Take Cue From Busted FinTech Offerings?

Investors may be gearing up for an initial public offering (IPO) renaissance, but if PYMNTS’ FinTech IPO Index serves as any harbinger: Caveat emptor.

There’s demand brewing for deal-making, for startups to be snapped up in the bid to buy rather than build operations, and for FinTech firms, in particular, to go public as they raise capital.

Monzo is a standout here, having raised more than $430 million in a funding round this month. Zilch may be among the firms going public, giving further opportunity for investors to play in the buy now, pay later (BNPL) space. Klarna is also in the IPO running. BNPL is expected to be a key area of growth in the months and years ahead, given the resilience of consumer spending, and as PYMNTS Intelligence found, the appeal of stretching payments out over time has touched consumers across all income brackets.

However, as March got underway, of the nearly four dozen FinTechs tracked by PYMNTS Intelligence, only five names have been trading above their offer price. Despite the 55% gain in the FinTech IPO Index recorded for 2023, the absolute returns to date have been, at best, spotty.

Only two of them — Futu Holdings and BILL, have posted significant gains since their market debut.

The overwhelming trend has been to the downside, as most companies have swooned double-digit percentage points. Many names are trading for pennies on the proverbial dollars, flirting with losses of 80% and more than 90%.

The declines in stock market prices mean that the market caps are now more palatable for acquisitions. It’s conceivable that a company with a $48 million market cap, like Katapult, could be a simple tuck-in for a larger industry player.

But on the metrics that Wall Street likes — the simplest one being price to earnings — the devil is in at least some of the details. Of the 44 names in the pantheon, only 16 have earnings to speak of. Taking a simple average of those earnings, the ratio comes out to a staggering 58x trailing earnings. The price-to-sales ratio, at about 11x, outpaces the tech-heavy NASDAQ’s roughly 5x reading. The ratios show that investors are paying up for growth, although the growth is not translating into profits.

However, within the payments space and the payments technology realm, deal-making is already finding its way around the rumor mill (although rumors are not done deals). Nuvei, with a $3 billion market cap, is reportedly in talks with Advent for a private equity buyout. Nuvei is profitable, having logged $117 million in operating profit on sales of $1.2 billion in 2023.