It turns out fintech is worth as much as SaaS

Lessons from the Remitly, Toast IPOs

Fintech startups are having one hell of a week.

On the heels of Boston-based software-and-payments company Toast’s strong IPO pricing, Remitly priced shares in its own debut above its proposed range yesterday evening. The Seattle-based fintech company sold 12,162,777 shares (7,000,000 primary) at $43 apiece. The company had previously targeted a $42 per-share max price for its IPO equity.

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At $43 per share, Remitly is valued less like a fintech company with gross margins in the 50% to 60% range and more like a middle-tier public SaaS firm, flush with recurring revenues and net-dollar retention north of 100%.

Toast, after seeing its shares rise sharply after starting to trade yesterday, sports a similar revenue multiple despite far weaker blended gross margins.

The lesson from today’s public markets appears to be that revenue growth matters more than near-term margins for fintech companies, allowing them to secure valuations that far surpass their final private marks. It’s an incredibly bullish set of results for fintech startups; they are worth more than they might have thought, or than their investors previously were willing to pay.

All the above is part and parcel of The Exchange’s recent contention that the IPO window is more than open for venture-backed companies. It’s just perhaps evenĀ better than that for fintech upstarts.

Let’s do the math, and then ask when the hell Chime and Klarna are going to get off their duffs and go public.

Fintech is the new SaaS?

In the second quarter of 2021, Toast reported revenues of $424.7 million and revenue costs of $336.3 million, giving the company a blended gross margin of just under 21%. Toast has high-margin SaaS revenues, low-margin fintech revenues and then smaller business lines that float around breakeven. It shakes out to a somewhat modest figure.

And worth $30.856 billion this morning, according to Yahoo Finance data, Toast has a run-rate multiple of 18.2x. Per Bessemer data, that’s roughly on par with the median revenue multiple for public SaaS companies.

Our read of the Toast revenue multiple is that public markets are valuing it far more on growth than margins, which means that fintech startups can accrete SaaS multiples no matter their gross margins, provided sufficient near-term revenue upside. Notable.