As Third Quarter Ends and Earnings Loom, FinTech Profits Come Into Focus

As of the close of trading Friday, the third quarter’s in the books.

And in just a few weeks, the scoring begins in the form of earnings season, where investors reward, or punish, publicly-traded companies as they update their quarterly results.

For the FinTech IPO Index, as tracked by PYMNTS, 2023’s marked a bit of a rebound from 2022, as the Index is up 27% year-to-date as of this writing. But the rebound, though a positive headline number, masks the fact that the average FinTech IPO is trading 47% below its offer price. Only about a quarter out of our pantheon of nearly four dozen names have P/E ratios, which is due to the fact that for most of the companies there’s no E — that would be earnings, of course.

The question of profitability is a pressing one in the FinTech realm, because momentum — once prized by investors, and particularly venture capital and private equity outfits that once had been reliable sources of funding — is no longer enough. These investors are facing their own high hurdles of performance when it comes to deploying capital, because their capital comes from their own clients.

The data’s not in yet for how venture capital funding fared in the third quarter. But the trend has been downward. As noted by S&P Global, global financial backing for the space fell by roughly half in 2023’s first half to about $23 billion. For the publicly traded firms, stock is currency, issued to management, in deal-making and sometimes to raise capital; if its value diminishes, then in many cases so does a company’s financial dry powder.

Uneven Performance

In recent news, the quest to turn a profit among digital-first and digital-only firms and platforms has been starkly illuminated across a variety of companies.

For instance, PYMNTS reported Wednesday (Sept. 27) that Flexport has seen the departure of several key executives — including its CEO and CFO — as it looks to find pathways to profitability.

Depending on where else you might look, there remains evidence that profits are in the mix: Nubank, for example, reported in its second-quarter results that it logged adjusted net income of about $263 million on a $1.9 billion top line. Paytm said earlier this year that it achieved profitability. Sezzle likewise reported successive quarters of profitability.

Sezzle co-founder and CEO Charlie Youakim and Dave founder and CEO Jason Wilk told PYMNTS CEO Karen Webster that for neobanks, the diversification beyond interchange fees remains critical. And in a separate panel discussion with Webster and Youakim, Bond CEO Roy Ng said that too many companies focused on customer acquisition and building up their employee rosters, and never defined how they’d get to profitability. Now, he said, “tighter market environments force companies to take a hard look at [whether] those growth areas are the growth areas [they] want to be in.”

In another interview, Mark Fiorentino, partner at venture capital firm Index Ventures stressed a multi-layered approach to profitability, which should see FinTechs and their executives aiming to tackle “tangible bottoms-up unit economics exercises” to understand the underlying fundamentals that drive positive performance and operating income.