Startup investors around the world are pouring capital into fintech startups. With good reason, it appears, if third-quarter earnings from public companies in the sector are any indication.
Earnings reports released this week show a host of fintech players with strong operating results, both delighting investors and boosting share prices. For private companies, seeing their public champions do well is more than simply encouraging; strong results from their comps could help upstarts continue to attract venture capital.
It’s shaping up to be fintech’s year, both in the public and private markets. After raising a record total of $52.9 billion in 2018, global fintech companies saw their private investment plateau in both 2019 ($46.5 billon) and 2020 ($48.4 billion), according to data collected by CB Insights. But this year, global fintech startups raised $94.7 billion through Q3.
That wave of capital has borne a host of new unicorns, as investors wager that there’s ample growth ahead for fintech companies generally. Meanwhile, third-quarter results from companies like Affirm, SoFi and Marqeta support the view that the sector still has a way to go in filling white space, coloring over incumbents and aging systems.
Let’s examine a series of winning fintech results from BNPL, consumer finance, proptech and corporate finance players. After parsing those results and relating what they may mean for startups in those subsectors, we’ll discuss fintech earnings misses from Q3.
Hint: Trading incomes that were once the toast of the fintech market caused more than a few companies to stumble when they released their recent operating results.
Consumer lending is strong
Public buy now, pay later (BNPL) company Affirm beat investor expectations in the most recent quarter, which is the first quarter of its fiscal 2022. And the recently listed fintech raised its guidance for its current fiscal year.
Affirm saw active consumers of its BNPL offering grow 124% to 8.7 million during the quarter, and the number of transactions per active consumer increased 8% to 2.3. But where it saw real growth was in the number of active merchants on its platform, which increased from 6,500 to 102,000 thanks to the adoption of Shop Pay Installments by merchants on Shopify.
It also announced that it was expanding its partnership with Amazon and would be the exclusive BNPL provider at the e-commerce giant’s checkout. As a result, Affirm’s revenues before transaction costs got an outlook bump, from an initially anticipated range of $1.160 billion to $1.190 billion to $1.225 billion to $1.250 billion.
Investors bid up the company’s shares in response. Affirm’s calendar third-quarter revenues of $269.4 million were ahead of an expected $248.2 million haul. And Affirm doesn’t think that the better-than-expected performance was a fluke. After initially forecasting that it would see $12.45 billion to $12.75 billion in total GMV in its fiscal 2022, Affirm raised its guidance to a range of $13.13 billion to $13.38 billion.
Affirm faces stiff competition in the buy now, pay later market, from a host of well-funded competitors, including Klarna. It is also taking on Square, which spent $29 billion to buy its own BNPL firm. Despite rising levels of competitive pressure, seeing Affirm boost guidance is bullish for BNPL more generally, even if the company has a few partnerships in hand that are unique to itself.
Affirm wasn’t the only consumer lending company to produce better-than-expected results: SoFi posted Q3 net revenues of $270.0 million ($277.2 million adjusted), ahead of expectations of $251.6 million. Of that total, some $210.3 million came from its lending products ($215.5 million adjusted).
Per SoFi, “[r]ecord volume in both personal and home loans, which were up 166% and 26%, respectively, more than offset the decline in student loan volume.” Given that we saw strong results from Affirm above, it’s perhaps not surprising that other consumer lending (debt) products are also seeing strong results.
SoFi, of course, has multiple lines of business. It got its start in student loans but has diversified its financial services business with a suite of consumer products and a fintech infrastructure play through its purchase of Galileo. But with revenues heavily concentrated in its consumer lending business, that’s the lens through which we consider it best viewed.
Strong results from Affirm and SoFi underscore consumer appetite for debt in various forms. For startups in the market busy lending to consumers — and their infra providers like Sivo — it’s good news.
iBuying is still lucrative, for some
While Zillow’s shock exit from the instant-buying — iBuying — real estate market took investors by surprise, Opendoor appears to be doing more than OK in the same category. The company’s third-quarter earnings saw revenues trounce expectations ($2.27 billion versus an expected $2.01 billion), and the company’s guidance ($3.1 billion to $3.2 billion) was ahead of expectations ($2.92 billion).
Opendoor is finding the market so compelling, in its earnings letter, the company said it is comfortable “reiterating the expectations that we laid out last quarter, effectively pulling forward our original three-year financial plan by two years.”
Offerpad, which also operates in the space, saw similarly strong results. With revenues up 190% in the third quarter to $540.3 million, gross profit rose 169% to $53.1 million, compared to the year-ago period.
Fintech infrastructure shines
Marqeta, which provides developer-centric tools for credit and debit card issuing and payments processing, also posted better than expected results for the quarter. And as growth-stage fintech infrastructure companies like Stripe and Plaid edge closer to going public, Marqeta could serve as a proof point showing that an API-driven developer play can be a highly lucrative business model.
Marqeta’s revenue rose to $131.5 million from $84.3 million a year earlier, which beat analyst expectations of $119.2 million in the quarter. That was driven by growth in total processing volume, which rose to $27.6 billion from $17.2 billion a year prior.
At the same time, Marqeta managed to narrow its loss during the third quarter. It posted a net loss of $45.7 million, or 8 cents a share, compared with a loss of $12.3 million, or 10 cents a share, in the year-earlier quarter.
Those results were driven by adding new customers, like Coinbase, as well as expanding usage among existing companies, like Uber. Tying back into some of the other trends we noted above, Marqeta highlighted strong growth in the BNPL market (>300% YoY), where it works with most of the major players, including Affirm, Klarna, Sezzle and Afterpay.
Crypto continues to be a volatile business
Last week, Robinhood and Square posted lackluster earnings, both blaming a decline in crypto trading as the culprit. So, it should come as no surprise that Coinbase, which operates the largest crypto exchange in the U.S., would also feel the effects of a trading slowdown.
The number of users transacting on the platform fell from 8.8 million in the second quarter to 7.4 million in the third. At the same time, trading volume fell to $327 billion from $462 billion in the previous quarter.
Like Robinhood before it, Coinbase warned that its trading volume would be lower in the third quarter. But unlike Robinhood or Square, Coinbase doesn’t really have another line of business to fall back on. As crypto goes, so will Coinbase’s fortunes — and that particular market is historically volatile and difficult to predict.