Fintech Headlines: February 13 - 19, 2023

Shopify guides for a deceleration in revenue growth, Nubank reports another record quarter, Upstart's origination volumes continue to decline, Toast expects revenue growth to continue in 2023

This Week in the Markets

The U.S. Labor Department reported that the Consumer Price Index rose by 0.5% in January on a seasonally adjusted month-over-month basis, which translates to an annual inflation rate of 6.4% (compared to 6.5% in December 2022). The Producer Price Index rose by 0.7% on a seasonally adjusted month-over-month basis, which translates to an annual inflation rate of 6.0% (compared to 6.5% in December 2022). Both readings exceeded economist estimates, suggesting that market participants might be too optimistic about Federal Reserve’s ability to curb inflation. The Dow and S&P 500 declined during the week, while Nasdaq Composite posted a minor gain.

Upstart (NASDAQ: UPST 0.00%↑), XP Investimentos (NASDAQ: XP 0.00%↑), Toast (NYSE: TOST 0.00%↑), and Shopify (NYSE: SHOP 0.00%↑) reported their Q4 2022 earnings this week, all giving weak guidance (more on that below). This did not, however, prevent Upstart stock from posting a weekly gain.

Next week the following Fintech companies will report their earnings: Coinbase (NASDAQ: COIN 0.00%↑) and Q2 Holdings (NYSE: QTWO 0.00%↑) will report on Tuesday (February 21), while Block (NYSE: SQ 0.00%↑) and Paymentus (NYSE: PAY 0.00%↑) will report on Thursday (February 23).

✔️ Inflation rose 0.5% in January, more than expected and up 6.4% from a year ago
✔️ Inflation Digs In to Start 2023, Pointing to Longer Fed Fight
✔️ Retail sales jump 3% in January, smashing expectations despite inflation increase
✔️ US Retail Sales Jump by Most in Nearly Two Years in Broad Gain
✔️ Wholesale prices rose 0.7% in January, more than expected

Shopify Reports Narrower Operating Loss, Guides for Revenue Growth Deceleration

Shopify (NYSE: SHOP 0.00%↑) reported its Q4 2022 results on Wednesday. Gross Merchandise volume increased 12.8% YoY to $61.0 billion and Gross Payment Volume increased 23.5% YoY to $34.2 billion, which drove a 25.7% YoY growth in revenue to $1.76 billion. The company’s operating loss narrowed to $188.7 million compared to $345.4 million in Q3 2022, as the layoffs that the company executed in the summer of 2022 started translating into lower operating expenses. The company posted a Net Loss of $623.7 million and an Adjusted Net Income of $61.0 million for the quarter. The company’s management does not provide guidance, but commented on the earnings call that it expects revenue growth to be in “high teens percentages” in Q1 2023, which suggests further growth deceleration (see the chart below).

Learn more about Shopify and why this company is a force to reckon with in payments 👉🏻 “Shopify Profile: making commerce better for everyone”

✔️ Shopify Announces Fourth-Quarter and Full-Year 2022 Financial Results
✔️ Shopify's revenue forecast fails to impress, shares fall
✔️ Shopify sinks as investors worry over big spending in weak economy
✔️ Shopify Stock Is Sliding. Investors Are Worried Growth Is Slowing
✔️ Shopify stock falls 5% as forecast disappoints amid escalating Amazon rivalry

Nubank Reports Another Record Quarter, Accelerates Its Lending Business

Nubank (NYSE: NU 0.00%↑), reported another record quarter. The number of clients increased 38.4% YoY to 74.6 million (of which 62% were active on a monthly basis), revenue increased 128.1% YoY to $1.45 billion, and the company posted a Net Income of $58 million compared to a Net Loss of $66.2 million in Q4 2021. Net Income figure excludes the impact of stock reward termination of $355.6 million, which is a non-cash charge related to the company’s founder and CEO, David Vélez, giving away his stock compensation package. In Q4 2022, the company accelerated lending after it saw a decline in delinquencies (loan balances and credit card receivables, net of provisions, increased from $8.2 billion in Q3 2022 to $9.9 billion in Q4 2022), which should provide a boost to interest income in the coming periods.

✔️ Nu Holdings Ltd. Reports Fourth Quarter and Full Year 2022 Financial Results
✔️ Nubank Weathers Brazil Credit Turmoil as Profits Surge
✔️ Buffett-backed Nubank's quarterly profit surges amid robust customer demand
✔️ Nubank’s Shares Climb as Q4 Revenues Surpass Expectations

Upstart’s Origination Volumes Continue to Decline as Investors Show Limited Appetite for Its Loans

Upstart (NASDAQ: UPST 0.00%↑), posted another disappointing quarter and provided grim guidance. Thus, the company reported a 62.4% YoY and a 16.7% MoM decline in loan originations to $1.54 billion, which translated to a 51.8% YoY and a 6.5% MoM decline in revenue, and a Net Loss of $55.3 million (compared to a Net Income of $58.9 million in Q4 2022). The company guided for $100 million in revenue and a Net Loss of $145 million in Q4 2023, as it expects the origination volumes to decline. Upstart continues to struggle, as a rapid increase in the interest rates and clouded economic outlook lowered investor appetite for risky consumer loans that the company originates. Those were weak quarterly results and terrible guidance… but the stock rallied following the earnings release. Go figure.

✔️ Upstart Announces Fourth Quarter and Full Year 2022 Results
✔️ Upstart revenue falls by half, earnings outlook underwhelms
✔️ Moody's downgrades three classes of bonds issued by Upstart securitizations

Toast Reports Improved Margins, Guides for Continued Growth in 2023

Toast reported its Q4 2022 results on Thursday. Thus, restaurant locations increased 39% YoY to approximately 79,000, and Gross Payment Volume grew 49.1% YoY to $25.5 billion, which translated into a 50.2% YoY revenue growth to $769.0 million. Toast’s gross profit margin improved sequentially to 20.5%. The company reported an Operating Loss of $99.0 million, and an Adjusted EBITDA of negative $18.0 million, compared to an Operating Loss of $116.0 million and an Adjusted EBITDA of negative $45.0 million in Q4 2021. Toast guided for revenue in the range of $745 to $775 million in Q1 2023 (42% YoY at the midpoint), and $3.57 to $3.66 billion for the full year 2023 (32% YoY at the midpoint). The company’s management plans to achieve profitability on an adjusted basis by the year's end.

✔️ Toast Announces Fourth Quarter and Full Year 2022 Financial Results
✔️ Toast Stock Tumbles After Wider-Than-Expected Loss. But It’s Not a Disaster
✔️ Toast stock extends slide as 'bears have credible reasons to be skeptical'
✔️ We strive for perfect execution and continuous improvement, says Toast CEO
✔️ Toast acquires drive-thru tech company

If you are new to Toast, I suggest reading the company’s profile 👉🏻 “Toast Profile: a Fintech that aims to become the operating system for restaurants”

In Other News

✔️ More Auto Payments Are Late, Exposing Cracks in Consumer Credit
✔️ Credit card debt surpasses pre-pandemic levels
✔️ FIS Reports Fourth Quarter and Full-Year 2022 Results
✔️ FIS to Spin Off Worldpay Merchant Services Business Acquired in 2019
✔️ FIS’s Worldpay Spinoff Is Jumbled by Tough Outlook
✔️ Stripe Is on Track to Turn a Profit With $1 Trillion in Payment Volume
✔️ Crypto Investors Brace for More Crackdowns From Regulators
✔️ SEC Proposes Rule That Could Squeeze Crypto Platforms
✔️ Coinbase Says It Already Complies With SEC’s Crypto Custody Proposal
✔️ Coinbase downgraded ahead of earnings on 'treacherous' outlook
✔️ Robinhood Markets, Inc. Reports January 2023 Operating Data
✔️ XP Inc. Reports Fourth Quarter and Full-Year 2022 Financial Results
✔️ Pagaya Reports Fourth Quarter and Full Year 2022 Results
✔️ Buy now, pay later: 'The enemy is the credit cards,' Affirm CEO says
✔️ Payoneer receives UK E-Money license from Financial Conduct Authority

Cover image: Photo by Clay Banks on Unsplash

Disclosure & Disclaimer: I own shares in several companies that I write about in this newsletter, as I am bullish on the transformation in the financial services industry. However, the information contained in this newsletter is intended for informational purposes only and should not be considered financial advice. You should do your own research or seek professional advice before making any investment decisions.