Is Crypto Accelerating FinTech Growth? Earnings (RKT, GDOT, SQ, TREE)

Greetings,

This week, we look at the Fed’s focus on the digital dollar, blockchain enabled Figure’s new SPAC, Coinbase’s S-1, and strong Bitcoin driven growth at Square.

Also, given the potential impact of U.S. stimulus payments on loan forbearance and modifications, we have rolled out enhanced cashflow module and portfolios functionality for our clients on the PeerIQ platform.

Let’s get to it.

Unemployment Claims Fall and Larry Summers Raises Inflation Concerns

According to the Labor Department, unemployment claims dropped to 730,000 for the week of February 19th.  The 111,000 drop in claims is the biggest decrease since the summer of last year.

Meanwhile, Larry Summers raised inflation concerns “We are doing the 1960s all over again...the principal difference being even more fiscal and monetary stimulus.”

Fed’s Focus on the Digital Dollar

As the adoption of bitcoin continues to rise, the Fed is more inclined to create a “digital dollar”. Treasury Secretary Janet Yellen stated, “too many Americans don’t have access to easy payments systems and banking accounts, and I think this is something that a digital dollar, a central bank digital currency, could help with.”

Fed Chairman Jerome Powell said that their focus is to execute the project successfully rather than being the first to unveil this new form of currency.

PeerIQ Product Release Update

Generating reliable cash flow forecasts for pools of loans is invaluable for banks and investors during these unprecedented times.  Our new enhanced modules help our clients better process ever-changing market assumptions.

Enhanced Cashflow Module:

• Using CPR/CDR as inputs for projected paydowns and losses at the individual loan level, PeerIQ clients can price different loan pools with greater accuracy.

Portfolios:

• Separate loan pools can now be aggregated into a single portfolio that continues to track underlying pool data and updates.

Figure Launches New $287.5 MM SPAC

Figure Technologies Inc., the Mike Cagney led fintech lender using blockchain technology, announced the closing of its new fintech and financial services focused SPAC, Figure Acquisition Corp.  Citigroup advised on the IPO that generated $287.5 MM in gross proceeds.

Our take: This new SPAC is a form of non-dilutive M&A for Figure Technologies. Since SPACs are lucrative for sponsors and easy to put together, expect many more of these to launch (and some of these to fail to find a target).

Coinbase’s S-1 Filing

Coinbase’s S-1 filing with the SEC is now public.

• Coinbase posted $1.1 Bn in net revenue for 2020 (vs. $482.9 MM for 2019)
• Coinbase had 2.8 MM "transacting customers" on its platform at the end of 2020 (vs. 1 MM in 2019)
• Advisors on the deal include Goldman Sachs, Citigroup, JP Morgan, and Allen & Co.

Larry Cermak has posted some interesting insights on his Twitter thread.  Key highlights:

1. Coinbase revenue is 96% transactional and the ratio of revenue to volume is relatively stable.  If you know volume, you can deduce revenue relatively easily
2. In Q1, Coinbase is projected to bring in $362.6 Bn in volume, which is more than four times more than Q4 2020
   1. This would mean that Coinbase would generate $2.44 Bn in revenue in Q1 alone. (2x+ more than all of 2020)

Wisetack Raises $19 MM to Enable BNPL for In-Person Services

Wisestack, a startup that provides buy-now-pay-later services to in-person business transactions closed on $19 MM of new funding across two rounds, a seed investment and a Series A.  Greylock led both rounds.

Wisetack is taking a different approach to other BNPL companies by focusing on the in-person business world, helping finance consumer transactions involving things like home improvement and car repair.

Congrats to CEO Bobby Tzekin and Head of Capital Markets Katya Baron!

Brex Applies for Bank Charter

Fintech corporate card provider Brex, announced that it has submitted an application with the FDIC and the Utah Department of Financial Institutions to launch Brex Bank. The fintech’s subsidiary bank will be based in Draper, UT, and will be led by CEO, Bruce Wallace (former Silicon Valley Bank COO) and CFO, Jean Perschon (former UBS Bank USA CFO).

If approved for the bank charter, Brex stated that it will expand its product suite and offer credit solutions and other FDIC insured products to SMBs. Brex would join other fintechs like Varo Money and SoFi as firms that took the bank charter approach.

Earnings Season Continues - SQ, RKT, TREE, GDOT

Key highlights from recent earnings reports:

Square (SQ): Market Cap: $106 Bn, P/E ratio 426.2x, P/S ratio: 15.19x

• Announced $170 MM purchase of bitcoin on top of the $50 MM bought in Q4
• Revenue of $3.16 Bn in Q4 2020 (+141% YoY) driven by Bitcoin
• Gross Profit of $804 MM (+52% YoY)
• Monthly active customers for Cash App reached 36 MM, up 50% YoY, maintained low CAC at <$5 per new active customer

Rocket (RKT): Market Cap: $44.3 Bn, P/E ratio 47.1x, P/S ratio: 3.20x

• Record breaking Q4 and FY 2020
• Revenue of $4.7 Bn for Q4 2020 (+147% YoY)
• Net Income of $2.8 Bn (+205% YoY)
• Loan origination volume of $107.2 Bn (+111% YoY)

LendingTree (TREE): Market Cap: $3.66 Bn, P/E ratio 134.5x, P/S ratio: 4.05x

• Credit card revenue of $11.9 MM in Q4 2020 (-74% YoY)
• Personal loan revenue of $13.7 MM (-61% YoY)
• CEO Doug Ledba said, “During a pandemic, people appropriately took their stimulus money and paid down their balances and so they weren't necessarily shopping for credit cards and personal loans.”
• Our take - Stimulus is good for credit performance, but not good for growing new accounts

Green Dot (GDOT): Market Cap: $2.5 Bn, P/E ratio 110.4x, P/S ratio: 2.02x

• Launched Pay As You Go Debit Card in Q4 (in partnership with Walmart)
• Launched a new Flex debit card for Amazon
• Plans to collaborate with Google Pay and Gig Wage

In the News:

• S. Unemployment Claims Fell Sharply Last Week (WSJ, 2/25/2021) According to the Labor Department, unemployment claims dropped by 111,000 for the week of February 19th, which is the biggest drop since the summer of last year.
• S. Consumer Sentiment Fell in February to a Six-Month Low (Bloomberg, 2/26/2021) The University of Michigan’s Consumer Sentiment Index dropped to 76.8 in the month of February.
• What is Driving the Surge in Demand for Buy Now Pay Later? (International Banker, 2/23/2021) According to a study conducted by PYMNTS.com and PayPal, 37.2% of respondents indicated that convenience was the biggest motivation for using BNPL.
• Affirm to Launch Buy Now, Pay Later Debit Card (Reuters, 2/25/2021) Affirm’s new debit card will give consumers the option to use the BNPL functionality or pay up front like a normal debit card.
• ODX and Fundation to Combine and Form Linear Financial Technologies, the Leading Digital Account Origination Platform (PR Newswire, 2/25/2021) ODX and Fundation announced that they will merge and the combined entity will be called Linear Financial Technologies.
• Announcing: Microsoft Cloud for Financial Services (Microsoft, 2/24/2021) Microsoft has announced that it will launch Microsoft Cloud for Financial Services, which is a product intended to help financial institutions drive sustainable growth.
• AfterPay Scores BNPL Collaboration Deal with Stripe (FinExtra, 2/24/2021) Afterpay has teamed up with Stripe to offer consumers the option of installment-based purchases.
• M&T Bank to Buy People's United in $7.6B All-Stock Deal (BankingDive, 2/22/2021) M&T Bank has announced that it will acquire People’s United for $7.6 Bn, which would bring the combined bank assets to $205.4 Bn.
• Petal Takes in $126.6M Debt Facility to Provide Access to Credit (Crunchbase, 2/24/2021) Petal, led by CEO Jason Gross, has secured over $126.6 MM in debt facility backed by Silicon Valley Bank and Trinity Capital.
• Coinbase Prospectus Lacks Key Trading Details for Investors Who Want in on the Direct listing (CNBC, 2/26/2021) According to Coinbase’s S-1, the company only sold 2.1 MM shares in 2020, which doesn’t give investors an indication of what prices to expect in the private market.

Lighter Fare:

• ‘The Scream’ Has a Hidden Message in It And Experts Just Figured Out Who Wrote It (All That’s Interesting, 2/25/2021) The hidden message behind Edvar Munch’s iconic painting, “The Scream,” has been unraveled.