Fintech earnings bonanza as Coinbase and Upstart grow sales 11-fold


Coinbase employees spray champagne during the company’s initial public offering (IPO) outside the Nasdaq MarketSite in New York, U.S., on Wednesday, April 14, 2021.

Michael Nagle | Bloomberg | Getty Images

If you had any lingering doubts about the growth of fintech, take a peek at Tuesday night’s earnings reports from two newly-public companies.

Cryptocurrency exchange Coinbase reported a 12-fold increase in revenue from a year earlier to $2.23 billion. Not to be outdone, online lender Upstart Holdings said revenue climbed 11-fold from a year ago to $194 million.

These numbers are staggering.

For companies of this scale to even double annually requires being in the right place at the right time with the right team, and often means a hefty infusion of capital to acquire new customers. The most successful tech companies of all time never saw growth rates in the quadruple digits while public.

Amazon’s top growth was around 300% in 1998, shortly after its IPO. Google’s revenue doubled in its first few quarters on the market in 2004 and 2005 before tapering off. Facebook never got into triple-digits growth after going public.

Even in the pandemic-fueled year of 2020 — when new users flocked to digital work and exercise products — Zoom’s growth topped out at 369% and Peloton’s at 232%.

What’s happening in finance is different, and Coinbase and Upstart represent the public market proxies for some of the biggest shifts happening across the globe.

Big banks and investment firms have lost their control over the consumer. Loans are available from a plethora of easy-to-use online services. Start-up banks and credit-card companies are killing the fees. So are app-based brokerages and trading platforms. In the public and private markets, the valuations are astronomical.

Square, which went public in 2015 as a payment service for small businesses, is now worth $125 billion and has a portfolio of business, consumer and money-transfer services.

Last week, Square said it’s spending $29 billion in stock on Afterpay, an Australian provider of point-of-sale loans for retailers. That’s one of the biggest tech deals ever, and more than Microsoft, Google, Facebook, Amazon, Apple, Oracle, Cisco or Intel have ever spent on a deal.

“On the heels of Square’s purchase of Afterpay, there’s no other space in tech that’s as hot as fintech,” said Eric Jackson, a tech investor and president of EMJ Capital.

In addition to Square, Upstart (which he owns) and Coinbase, Jackson named Plaid, whose back-end software links bank accounts with fintech apps, and online lender SoFi as some of the companies seeing the greatest momentum.

“Of course, I’m biased and think Upstart’s the best of the bunch,” he said.

He’s made a lot of money on it. Upstart went public in December at $20 a share, and Jackson said he’s owned it since the IPO. After surging 24% on Wednesday, the stock is now hovering around $170, valuing the company at over $12 billion.

Founded in 2012 by former Google executive David Girouard, Upstart uses machine learning to underwrite consumer loans and provides its technology to banking partners who can then better target customers. Girouard said on the earnings call that 25 banks and credit unions are now using its technology and there’s a “growing list of lenders in our pipeline for the second half of 2021.”

Online lending boom

Upstart said second-quarter revenue jumped 60% from the prior quarter, and that June was its first month to top 100,000 loans and $1 billion in origination volume on its platform.

Comparing second-quarter results to the same period a year earlier isn’t entirely fair, because at that point in 2020, the country was in the early stages of the pandemic and much of the economy had shut down. Upstart said in its prospectus that many bank partners halted originations, leading to a drop in revenue.

CFO Sanjay Datta made sure to remind investors of that on the call.

“We will omit references to year-over-year growth rates for our P&L this quarter as they are all well above 1,000% due to the lapping of last year’s pandemic impact,” Datta said.

Still, picking even Upstart’s best quarter from last year, revenue is up over 200%. Net income of $36.3 million was up from $10.1 million the prior quarter, which had been its most profitable quarter.

The story for Coinbase is all about the historic growth in crypto investing, even as prices have become more volatile.

Trading volume in the second quarter surged to $462 billion from $28 billion a year earlier. Assets on the platform reached $180 billion up from $26 billion. Net profit was $1.6 billion, up nearly 4,900% from a year earlier.

“We had amazing growth in terms of users added to the platform, assets on the platform, revenue, just about everything,” Coinbase CEO Brian Armstrong said on the earnings call.

Coinbase went public through a direct listing in April. With a fully diluted market cap of about $77 billion, its valuation has climbed by almost 10-fold since 2018.

Crypto spreads the wealth

Crypto trading has also been one of the biggest drivers for Robinhood, which went public in July and is now worth over $45 billion, up from about $12 billion a year ago. While Robinhood hasn’t yet reported results as a public company, it said in its prospectus that revenue in the first quarter increased 309%.

In the private markets, fintech companies are attracting massive valuations as well. According to research and analytics firm CB Insights, eight of 20 most-valuable private tech companies are in financial services.

Payments company Stripe was most recently valued at $95 billion. Sweden’s Klarna, a competitor to Afterpay and Affirm in point-of-sale lending, is worth $45.6 billion. Revolut, a money transfer and investing app out of the U.K., is valued at $33 billion, and Brazilian digital banking service company Nubank is worth $30 billion.

Further down the list, online banking provider Chime last raised money at a $14.5 billion valuation and Plaid, which Visa had planned to buy before the deal was scrapped, is valued at $13.4 billion.

There may be froth. And the hype in some areas has surely gotten well ahead of reality.

But as financial results are showing, consumer expectations are changing rapidly as is the flow of money. There’s a reason why JPMorgan Chase CEO Jamie Dimon warned shareholders in his annual letter in April that “banks are playing an increasingly smaller role in the financial system.”

Correction: This update fixes a typo that was in a prior version of the story. Upstart did 100,000 loans in June, not $100,000 of loans.

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