Predictably Unpredictable (Part II): Is Fintech Really Dead?

By: Medha Agarwal and Emily Man

There have been a lot of headlines recently proclaiming the death of fintech. Fintech stocks are cratering! Is fintech categorically still interesting? Tech stocks falter but fintechs nosedive.

But how true is this really?

As we discussed in our last post, there is finally a critical mass of publicly traded fintech companies that give us a lens to how public-market investors truly feel about these questions. We outlined how unpredictability of transaction revenue in fintech as well as the business implications of revenue that is more volatile than SaaS. In this post, we take this a step further to contextualize fintech valuations relative to SaaS — what multiples look like today, what they were at the peak, and the relative changes due to recent market volatility. To do so, we looked at data from 9 public fintech and 9 SaaS companies. We tried our best to find apples to apples SaaS comparables (high growth, recent IPO, unprofitable) to truly understand whether the headlines hold truth.

The tl;dr — fintech, while down significantly YTD and from the highs, have been performing in line with their SaaS peers.

A few core takeaways jump out from this data:

  1. SaaS and fintech consistently produce multi-billion dollar companies. This underscores the opportunity to build long term, sustainable enterprise value in these sectors

Takeaway 1: SaaS & fintech consistently produce multi-billion dollar companies

Valuable businesses have been built in both fintech and SaaS. Despite the market correction, many fintech and SaaS companies still have an enterprise value in the billions. We may have become desensitized to the enormity of this outcome over the last 2 years but let’s take a moment to recognize that this is huge.

So what? Just like SaaS is here to stay, so is fintech. It is by no means dead. If anything, this illustrates the attractiveness of and continued opportunity in the category.

Takeaway 2: Both groups have been equally impacted by the correction

The narrative of late has largely been that fintech has taken a bigger hit than SaaS. Yet our analysis shows that on more of an apples to apples comparison, the drawdown in the market has treated the two sectors very similarly in terms of both stock performance and multiple contraction (85% median drop in multiple peak to trough for fintech vs. 82% for SaaS and 55% decline YTD vs 53%). That said, across both sectors we still see that the best performing companies are still valued at a premium relative to their peers — for example Nubank and Snowflake both trade at a 67% higher multiple than the median.

Takeaway 3: SaaS trades at a premium

The median fintech in our cohort traded at 24.9x EV / NTM revenue at its peak and trades today at 3.3x. SaaS on the other hand, traded at a median 50.4x at the peak and at 11.5x today. Even throughout the run-up of the last 18 months, the delta between the two has remained relatively consistent with software companies generally trading at roughly 2–3x higher multiples.

Why the premium? The reality is SaaS is more predictable than fintech revenue. Because subscription revenues (SaaS) are both recurring and sticky they are generally perceived as more predictable (i.e. higher quality) than transactional revenue (fintech). In large part, these companies trade at a premium multiple because of their revenue predictability relative to other business models.

Takeaway 4: Future growth outlooks diverge drastically

While multiples and stock performance differences between fintech and SaaS companies have largely moved in lockstep, there is a stark difference in expected future growth. Across our two buckets, fintech companies were expecting a median growth of 23% vs 59% for SaaS. What’s even more striking is the dispersion within the groups themselves. In fintech, companies like Robinhood, Upstart, and Coinbase are expecting flat to declines in revenue going forward while across the SaaS companies, all businesses are still expected to grow 20%+ next year.

Why? By definition, transactional business models are more sensitive to market changes in the short term, particularly the types of businesses that are highly exposed to discretionary consumer spending or credit risk. Companies like Robinhood, Coinbase, and Affirm all experienced accelerated growth in the bull cycle. SaaS companies on the other hand, primarily sell to businesses and growth depends on business budgeting cycles which are slower to adjust. In a way, transactional fintech businesses almost act like bellwethers for what is to come throughout technology; a readthrough to emerging recessionary pressures.

So what does this all mean?

We will be the first to admit that this analysis is oversimplified. Of course, there are many other factors that ultimately drive how an individual company is valued. Nonetheless the takeaway is still important.

Our point here is simple. We believe that fintech has been unfairly portrayed and classified in the past few months. We’ve seen the headlines and Twitter threads questioning the entire sector’s validity as high-flying trailblazers have stumbled. We believe this is partly because fintech is a newer category and as a result, has faced harsher scrutiny and press in this pullback. SaaS is a much more mature category that has seen multiple cohorts of companies emerge across two decades vs. fintech which is newer to the scene and less well understood. The data shows that this scrutiny is overblown because fintech repricing remains in-line with SaaS.

We know that fintech is very much not dead. It is as exciting to us as it has ever been. But not all fintech models are created equal. Revenue models and growth are more complex and can be more sensitive to macroeconomic shocks both on the way up and down. Builders and investors alike need to understand this and create prudent business plans that reflect this reality. We believe we’re still in the early days of fintech innovation and are excited to continue supporting the industry as the next wave of generational companies take the stage. Countless pain points and inefficiencies still exist and are ripe for disruption. For the builders out there, LFG!



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Medha Agarwal

Currently @RedpointVC. Former founder, ops, and consultant. Proud @HarvardHBS @Harvard @Radlwtcrew @Bainalerts alum. Recovering New Yorker, currently loving SF