Analysts at Pitchbook have shared key insights covering major developments in Fintech and the payments sector.
As noted in the report from Pitchbook, shares of recently publicly traded fintech & payments IPOs “rose by 21.2% in Q2, notably outperforming the Nasdaq’s 12.8% and S&P 500’s 8.3% return.”
The Pitchbook report also mentioned “that recent SPACs (+13.5%) underperformed recent IPOs (+21.2%), underscoring that investors want quality over unprofitable growth.”
The update also mentioned that FAANG stocks, Nvidia and Tesla, “drove the Nasdaq forward, accounting for a majority of the index’s gains.”
As stated in the Pitchbook report, multiples still in limbo, “unlikely to rebound materially in the near term: Median EV/NTM sales multiples saw small increases across all of our cohorts in Q2.”
The median multiple “for high-growth fintech companies saw a notable jump to 4.1x from 2.8x in Q1.”
Despite quarter-over-quarter improvement, multiples remain “at depressed levels compared to 2022.” The report further noted that this “highlights ongoing investor caution and heightened focus on profitability.”
As stated in the report from Pitchbook, EBITDA forecasts “growing at healthy pace despite valuation reset: 2023 and 2024 estimates for EBITDA growth are primarily positive for our neobank, broker, and crypto companies, as well as for our high-growth payments, medium-growth and legacy payments, and medium-growth and legacy fintech companies.”
Many fintech companies have “focused their efforts on achieving profitability, resulting in reductions in personnel, marketing costs, and other operating expenses.”
Some fintech companies such as neobanks “are beginning to emerge with profitable business models.” Pitchbook analysts added that they “expect investors to remain prudent in the near term and to continue to look for companies on the path to profitability.”
M&A activity continues, “accrues to strongest incumbents: Q2 brought a few more acquisitions by both public and private companies.”
Notable activity from the quarter “includes the acquisitions of X1 by Robinhood, SeedInvest by StartEngine, Wyndham Capital Mortgage by SoFi, and Focus POS Systems by Shift4 Payments.”
These acquisitions all “highlight the strategic decisions to increase revenue streams, customers, and product offerings.”
FIS also “acquired Bond, furthering the trend of companies acquiring embedded finance and banking-as-a-service startups.”
In Q2, they also “saw Fifth Third Bank acquire Rize, Qenta acquire Apto Payments, and BMTX acquire Envel.” As noted in the report from Pitchbook, the pickup in M&A activity “suggests that lower valuations are favorable for acquirers with adequate free cash flow and sufficient cash balances.”