Signals: Public fintechs reached "profitable growth" in H1 2024

Hello, Fintech Friends!

May was a busy month for publicly traded Fintech companies, as they reported their Q1 2024 results. Most of the companies have adjusted to the new reality, executing on their commitment to delivering "profitable growth", which in some cases, even meant delivering profitability on a non-adjusted basis.

However, investor optimism about the Federal Reserve cutting rates soon continued to wane, which put pressure on most growth stocks, including the Fintech companies. Thus, according to the CME FedWatch Tool, investors now assign a very low probability of the Federal Reserve cutting rates until autumn.

High interest rates, that are staying high for longer, require delivering higher growth rates. So it was not enough to meet analysts' expectations and reiterate growth targets (which many Fintech companies did). If a company didn't raise the guidance, its stock was taken to the woodshed.

Anyways, stock market volatility aside, fundamentally it was a strong earnings season for most Fintech companies. They delivered growth, expanded to new markets, launched new products, and hit record profitability levels. So let's dive into the key stories of the month!

Dave (NASDAQ: DAVE), Robinhood (NASDAQ: HOOD), and Nubank (NYSE: NU) lead the Fintech companies in terms of year-to-date stock performance. As of June 8, 2024, their stocks were up 348%, 74%, and 42% year-to-date respectively. See the other best-performing Fintech stocks below 👇🏻

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NB! The chart above excludes Dave (NASDAQ: DAVE). Given Dave's stock performance (348% YTD), adding it would make the chart unreadable.

Nubank represents what every Fintech company wanted to be: rapidly growing, cost-efficient, and unafraid to challenge the incumbents. Thus, in May, the company reached the 100 million customer milestone, which made it the fourth largest financial institution in the region by the number of customers, and passed Itau to become the most valuable bank in Latin America.

In Q1 2024, the company reported a 64% YoY growth in gross revenue to $2.7 billion, and a 167% YoY growth in net income to $378.8 million. Deposits increased 53% YoY to $24.3 billion, while total credit card receivables and personal loan portfolio increased 52% YoY to $19.6 billion. Despite impressive growth numbers, the company already generates 23% in annualized ROE.

In its home market, Brazil, Nubank already serves 54% of the country's adult population, and is now trying to replicate its growth blueprint in Mexico. So far, the company has onboarded 6.6 million customers in Mexico, as well as attracted $2.3 billion in deposits. However, Nubank is growing in Mexico faster than it grew in its early days in Brazil.

Read more: Nubank Q1 2024 Earnings Release

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Nubank stock performance: +42% YTD, +60% 1Y

Block dedicated its Shareholder Letter to Bitcoin and the company's bets in the Bitcoin ecosystem (the company's Q3 2023 and Q4 2023 Shareholder Letters were dedicated to Square and Cash App ecosystems respectively).

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Less than 3% of company resources are dedicated to bitcoin-related projects

. All of which have been more than fully covered by the profits from our bitcoin exchange, which is Cash App’s fourth largest gross profit stream."

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Q1 2024 Shareholder Letter

Thus, Cash App allows its users to buy, sell, and hold Bitcoin, a service that contributed 4.2% of Block’s gross profit in 2023. In addition, Block recently launched Bitkey, a non-custodial wallet that "combines intuitive software, robust hardware, and advanced security measures", as well as building Bitcoin mining hardware, including a proprietary ASIC chip.

Finally, the company plans to go after the $860 billion global remittance industry, with its TBD venture, which "created a protocol for on- and off-ramps from fiat to digital currencies that would allow anyone without a bank to participate in the larger global economy." Oh, and from now on, Block will be investing 10% of its gross profit from Bitcoin products into Bitcoin.

Read more: Block Q1 2024 Shareholder Letter

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Block stock performance: -16% YTD, -2% 1Y

Coinbase absolutely smashed analysts' Q1 2024 estimates, posting $1.6 billion in revenue, an increase of 116% compared to Q1 2023, and $1.2 billion in net income, which compares to a $79 million net loss a year ago. Revenue growth was driven by a 68% YoY growth in transaction revenue, and a 32% YoY growth in subscription and services revenue.

The company's performance in Q1 2024 proved that its business is resilient to competition from spot Bitcoin ETFs, and that it can successfully diversify its revenue to decrease reliance on trading fees. Thus, over the last four years, Coinbase grew its Subscription and services revenue from $7.1 million in Q1 2020 to $510.9 million in Q1 2024.

In early 2021, Brain Armstrong, Coinbase co-founder and CEO, gave an interview to CNBC stating that he didn't expect margin compression either in the short, or in the medium term, and that non-trading fees would represent 50% or more of the company's total revenue in "five or ten years." That interview might not have made sense then, but it totally makes sense now.

Read more: Coinbase Q1 2024 Shareholder Letter

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Coinbase stock performance: +30% YTD, +358 1Y

Robinhood reported strong Q1 2024 results boosted by increased crypto trading activity. Thus, total revenue increased 40% YoY to $618 million, with transaction-based revenue increasing 59% YoY, and net interest revenue increasing 22% YoY. It was the first quarter in a year, when the company earned more in trading fees than in interest income.

Adjusted EBITDA for the quarter increased 115% YoY to $247 million and the company also posted a record GAAP Net income of $157 million, an impressive improvement from a Net Loss of $511 million a year ago. Nevertheless, despite a strong quarter, the stock declined over 10% by the end of the week. And then...

Keith Gill, a trader, who led the Reddit investor community during the Meme stock frenzy in 2021 and who remained silent since then, posted a picture of a man leaning in, indicating his return. Shares of GameStop soared over 70% the next day. The story continues with Keith Gill actively posting on social media and even holding a live stream.

Ironically, similarly to 2021, Robinhood had to halt trading of the company's stock. And similarly to 2021, the market expects Robinhood to pocket trading fees from the Meme stock phenomenon. Robinhood's stock is up 36% since then. For a comparison, in Q1 2021, Robinhood reported a 3x YoY growth in revenue.

Read more: Robinhood Q1 2024 Earnings Presentation

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Robinhood stock performance: +74% YTD, +136% 1Y

Affirm (NASDAQ: AFRM) delivered another strong quarter, with Gross Merchandise Volume increasing 36% YoY to $6.3 billion, revenue increasing 51% YoY to $576 million, and the operating loss decreasing to $161 million, compared to an operating loss of $310 million a year ago.

However, investors were paying attention to the company's progress with the rollout of the Affirm Card. Affirm Card, which crossed the 1 million cardholder mark in April, opens the world of in-person commerce for the company and puts it in direct competition with credit card companies, such as American Express.

However, a new product launch from Visa made Affirm Card an even more exciting opportunity. Thus, on May 15, Visa announced the upcoming launch of Visa Flexible Credential, which essentially allows combining debit and credit capabilities under one card. A consumer can choose, whether to settle a payment immediately or use a credit line.

Not surprisingly, the press release mentioned Affirm as the launch partner for Visa Flexible Credential in the United States. Affirm Card is a debit card, which allows the company's customers to finance some of the transactions with a BNPL loan. Thus, Affirm has been piloting Visa Flexible Credential for a while now.

Read more: Affirm Fiscal Q3 2024 Shareholder Letter

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Affirm stock performance: -39% YTD, +85% 1Y

In November 2023, Shift4 founder and CEO Jared Isaacman said that the company is "actively exploring strategic opportunities and alternatives", which meant that the company was looking for an acquirer (Isaacman has been vocal that the public markets do not appreciate the true value of the company).

On May 9, 2023, after months of speculations about potential acquirers, Shift4 published its Q1 2024, stating that the company's Board "received multiple formal offers from strategic parties at a share price premium materially higher than levels at the time of the review." However, those did not result in a deal and the company will stay independent.

The company's stock price crossed the $85 per share mark at the peak of the speculation about a potential buyer, as investors expected the acquirer to pay a premium over the market price. Strong Q1 2024 results helped lift the stop price, but it is still trading below that $85 level.

In the meantime, Nuvei (NASDAQ: NVEI) is going ahead with the acquisition by a private equity firm Advent, and the shareholder vote is scheduled for June 14, 2024. In April, the company agreed to be acquired by Advent in a $6.3 billion deal, which was a 50%+ premium to the stock price.

Read more: Shift4 Q1 2024 Shareholder Letter

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Shift4' stock performance: -2% YTD, +7% 1Y

Toast held its inaugural Investor Day on May 31, 2024. Like many other Fintech companies, Toast focuses on "profitable growth". Thus, the management guided for "at least 20%" annual growth in gross profit in the next 2-3 years, as well as committed to reaching the Rule of 40.

In the case of Toast, the Rule of 40 means that the sum gross profit growth + operating income margin should be at least 40%. In early 2023, Block committed to achieving a similar target in 2026, and the company reiterated lately that it is on track to deliver on this promise.

Toast is also working on expanding its financial services offering, piloting "a banking solution, an insurance solution, a Bill Pay solution.” In the meantime, Toast Capital, the company's lending offering, reached $1 billion in annualized origination volume.

Finally, Toast already serves 12.6% of restaurants in the U.S. (110K locations out of 875K), so the company is expanding its TAM by going international (+280K locations) and entering the U.S. Food & Beverage Retail segment (+220K locations).

Read more: Toast Investor Day 2024 Presentation

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Toast stock performance: +21% YTD, +1% 1Y

Shopify (NYSE: ALKT) and Alkami (NASDAQ: ALKT) are the most expensive Fintech stocks in terms of both, forward Enterprise Value / Sales and Enterprise Value / EBITDA multiples. See the multiples for other companies (as of June 8, 2024) below 👇🏻