Signals: TWIF Index FTW

Hello, Fintech Friends!

When we first introduced the TWIF Index in July, it was underperforming the Nasdaq Composite. With just a couple of weeks left in the year, the TWIF Index is up 57.2%, while the Nasdaq Composite and the S&P 500 are up 36.9% and 30.3% respectively. We wanted to create a simple, transparent index, that, perhaps, would not cover every public fintech company, but would provide a strong signal about the overall health of the industry.

I think we have succeeded in our ambition. First, it was indeed a fantastic year for many publicly traded fintech companies. "Fintech is back" is the consensus, and the TWIF index outperforming the market is a good proof of that. Second, the outperformance was very broad. Robinhood, Coinbase, Shopify and Nubank had an amazing year. But so did the older generation of fintech companies like FICO, Fiserv, PayPal and FIS.

However, big banks did fine too. JPMorgan is up 44%, Wells Fargo is up 46%, Bank of America is up 39%, and Citi (yes, Citi) is up 43% YTD. British banks did even better: NatWest is up 97% and Barclays is up 83%. As they say, "a rising tide lifts all boats". My hope for 2025 is that, if the tide starts to turn, fintech companies will be the ones still sailing toward new horizons.

Jevgenijsp.s. Have feedback? Ping me on X/Twitter.Happy to hear how we can improve this column!

With only a few weeks remaining, Sezzle (NASDAQ: SEZL) and Dave (NASDAQ: DAVE) are most likely to finish the year as the best-performing fintech stocks of 2024. However, there is still fierce competition for the 3rd place with Robinhood making a massive move in the last month or so. Will it manage to overtake Australian BNPL lender Zip, and British SME lender Funding Circle?

Robinhood held its inaugural Investor Day. A few facts about the company: three key areas, Brokerage, Crypto, and Money (includes Robinhood Gold Card). More than 24 million customers, 75% of whom are millennials and Gen Z, and half hold crypto. $160 billion in assets under custody, $6.5K in average assets per customer. $2.4 billion in revenue in the last twelve months (up 36% YoY) and $949 million in Adjusted EBITDA (up 96% YoY).

Vlad Tenev, Robinhood's co-founder and CEO, laid out the company's strategy in three "arcs": becoming the #1 destination for active traders (1-2 years), having the #1 wallet share for the next generation (5 years), and evolving into the #1 global financial ecosystem (10 years). The heads of the brokerage and crypto businesses then added details on how their roadmaps support this vision.

Thus, for the brokerage business, becoming the #1 destination for active traders means winning on the web (the company recently launched its web app, Robinhood Legend), scaling margin lending business and introducing more futures and options (as well as event contracts). Robinhood plans to gain the wallet share through its retirement products, as well as by building an advisory and RIA custody businesses (hence, the acquisition of a custodial and portfolio management platform for RIAs, TradePRM).

For the crypto business, becoming the #1 destination for active traders means introducing more tokens, which will be supported by crypto-friendly regulation and the acquisition of an exchange (Bitstamp). Gaining the wallet share means introducing staking in more geographies (Robinhood already offers staking in the EU), as well as scalling Robinhood Wallet and Robinhood Connect, its "turnkey on-ramp for dapps" solution.

Robinhood also plans to continue expanding internationally (the company is launching brokerage business in Singapore and plans to "acquire licenses for 3 more markets"), as well as continues to build its institutional capabilities (prime brokerage and crypto exchange) with the ambition of becoming the #1 global financial ecosystem.

The three growth "arcs" are estimated to expand Robinhood's TAM to $600 billion in revenue, which is 250x the company's revenue in the last 12 months. It should be noted this $600 billion TAM includes $100 billion in the US credit cards, $100 billion in international advisory, $100 billion in international credit cards and $100 billion in global neobanking.

I believe no one doubts that Robinhood will continue taking market share from the incumbent brokerages. Can it compete in crypto trading? Absolutely! And the collapse of FTX and troubles at Binance helped getting the momentum going. Robinhood also had a good start with Robinhood Gold Card, and the acquisition of TradePRM looks promising, though these initiatives are in their infancy.

Adding international advisory, credit cards and neobanking to the TAM was probably a stretch, but it's still a very promising company and its Investor Day is worth spending a couple of hours on 👉🏻 Robinhood Investor Day 2024

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Robinhood stock performance: +215% YTD, +235% YTD

Klarna, one of the leading Buy Now Pay Later lenders globally, has confidentially filed IPO documents with the SEC, and is lining up investment banks to help with the listing. This will be the first IPO of a major fintech company, with many more announced or rumored to occur in 2025 - 2026. Analysts expect the company to be valued at $14.6 billion, which compares to $22.2 billion for its closest competitor Affirm.

In the last 12 months (Q4 2023 - Q3 2024), the company reported $102 billion in Gross Merchandise Volume (vs. $28 billion for Affirm), $2.6 billion in revenue (vs. $2.5 billion for Affirm), and an operating loss of $102 million (vs. $539 million for Affirm). Klarna has been profitable on operating income level in the past two reported quarters, thanks to (allegedly) realizing efficiencies from the use of AI.

Klarna is headquartered in Sweden and has a strong footprint in Europe, but, unlike other European fintech companies, such as Wise and Adyen, chose to list in the United States. As noted above, Klarna is comparable to Affirm in terms of revenue, but is slightly more profitable. Will it achieve its valuation target of $14.6 billion? Or will it trade at a "European discount"? We will find out soon.

Read more: Klarna Investor Presentation, January - December, 2023

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Klarna stock performance: TBD

The payments industry is about to lose two iconic leaders. Thus, the president-elect Donald Trump, nominated Jared Isaacman, founder and CEO of Shift4, to lead NASA, and Frank Bisignano, CEO of Fiserv, to lead Social Security Administration. Both, Isaacman and Bisignano accepted their nominations. Both Fiserv and Shift4 stocks dipped on the announcement, but are still up 53% and 39% YTD respectively.

Jared Isaacman founded Shift4 in 1999 at the age of 16, and remains the company's largest shareholder with the controlling vote. Isaacman wasn't sure whether he'll need to sell his stake in the company if his nomination is approved. Frank Bisignano came to Fiserv through the merger between Fiserv and First Data in July 2019, and was promoted to the CEO role in May 2020. Bisignano held the COO role at JPMorgan prior to joining First Data.

Donald Trump also picked the candidate for the head of treasury, nominating hedge fund manager Scott Bessent. This nomination put an end to the speculation that Trump will manage to lure Jamie Dimon, JPMorgan's chief executive, to his administration. “I haven’t had a boss in 25 years and I’m not about ready to start,” was Jamie Dimon's final comment on this rumor. At least we get to keep Mr. Dimon, but Jared Isaacman and Frank Bisignano will certainly be missed.

Read more: Jared Isaacman’s Acceptance of Nomination for NASA Administrator

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Fiserv stock performance: +54% YTD, +51% 1Y

Shift4 stock performance: +37% YTD, +50% 1Y

On December 12, 2024, public markets welcomed ServiceTitan. In their own words, ServiceTitan is "the operating system that powers the trade". You can think of it as Toast for "plumbers, roofers, landscapers, HVAC technicians" and other specialists that maintain and service commercial and residential buildings. The company raised $625 million through the IPO, and closed its first trading week at $100 a share, which represents a $8.8 billion market cap.

What does it have to do with fintech? Similar to other vertically integrated software vendors, like Toast and Shopify, part of ServiceTitan's revenue comes from "payment processing and third-party financing solutions". In the last four reported quarters, the company generated $685 million in revenue, of which $156 million (23%) came from "usage revenue", primarily consisting of payment and lending fees.

The share of revenue that ServiceTitan derives from fintech products is relatively low (e.g. over 70% of Shopify's and 82% of Toast's revenue comes from payments and lending). However, the company is broadening its financial services offering (earlier this year, ServiceTitan partnered with Synchrony to offer consumer financing), so let's see how this evolves. The marker loves vertically integrated software vendors, so ServiceTitan is definitely a company to watch.

Read more: ServiceTitan Form S-1

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ServiceTitan stock performance: +40% YTD (2 trading days)

Gen (NASDAQ: GEN), the company behind the antivirus software Norton and Avast, agreed to acquire a neobank and a financial services marketplace MoneyLion. Gen will pay $1 billion in cash ($82 per share), and will pay an extra $280 million ($23 per share) in case Gen's stock price reaches a certain threshold in the next 24 months. Before the announcement, MoneyLion stock traded at $77. The deal is expected to close by the end of Q1 2025.

The acquisition will put an end to a rollercoaster journey. MoneyLion went public in the autumn of 2021 through a merger with a SPAC company. Similar to many SPACs of that era, the stock was destroyed after the Federal Reserve started raising rates. MoneyLion even had to do a 1-to-30 reverse stock split to maintain the listing after the stock price dipped below $1. MoneyLion's market cap dropped from $2.3 billion at the IPO to $80 million in April 2023.

There are many similarities between MoneyLion and Dave (NASDAQ: DAVE). Dave went public shortly after MoneyLion, also through a merger with a SPAC. The company had a market cap of $5.32 billion at the top...and $54 million at the bottom. After staging an incredible run over the past year (the stock is up 1,089%), Dave now trades at a market cap of $1.17 billion. Will it follow the suit of MoneyLion and get acquired?

Read more: MoneyLion Acquired by Gen Digital

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MoneyLion stock performance: +39 YTD, +85% 1Y

Dave stock performance: +991% YTD, 1,089% 1Y

Earlier in the year (e.g. in the summer), you could find Visa and Mastercard amongst the most expensive fintech companies. As of today, Visa's 22.5x and Mastercard's 25.9x EV/EBITDA multiple isn't good enough to make it to the Top 15.