Fintech Headlines: February 27 - March 5, 2023

Klarna plans to return to profitability by summer 2023, Marqeta's stock plummets on weak guidance and growth headwinds, Shift4 prepares for an aggressive European entry

Stock Markets Update

This was a quiet week in terms of the economic data. The U.S. 10-year treasury yield briefly crossed the 4% mark, suggesting that the markets might start considering the “higher [inflation] for longer” scenario. Next week the Federal Reserve Chairman, Jerome Powell, will testify in front of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, and the U.S. Department of Labor will release February data on employment. Major stock market indices closed the week in the green.

Shift4 Payments (NYSE: FOUR 0.00%↑), Payoneer (NASDAQ: PAYO 0.00%↑), Flywire (NASDAQ: FLYW 0.00%↑), and Marqeta (NASDAQ: MQ 0.00%↑) reported their Q4 2022 results, which explains this week’s moves (more on Shift4 and Marqeta results below). Q4 2022 earnings season continues with PaySafe (NYSE: PSFE 0.00%↑) and Dave (NASDAQ: DAVE 0.00%↑) reporting their results next week. Dave will report on Monday (March 6), after market close, and PaySafe will report on Thursday (March 9), before market open.

✔️ Stocks close higher Friday, Dow breaks 4-week losing streak
✔️ S&P 500 Notches Best Week Since Late January
✔️ The 10-Year Treasury Yield Tops 4% for First Time Since November
✔️ Stock Traders Are Ignoring Blaring Bond Alarms
✔️ The World Economy Is Doing Well—This Is Bad News for Central Bankers
✔️ Powell Set to Lay Groundwork for Higher Rates on Capitol Hill

This week I published a review of Nubank’s Q4 2022 results (requires paid subscription) 👉🏻 “Nubank Q4 2022 Earnings Review: back in (lending) business”

Markets in Crypto-Assets

“Markets in Crypto-Assets” is a new section in this newsletter (named after the upcoming regulation). A number of publicly traded Fintech companies directly or indirectly participate in the crypto economy (Coinbase, Robinhood, Block, and PayPal to name a few), so I decided to follow the industry more closely. Would love to hear from you in the comments on how to make this section valuable!

Silvergate Capital (NYSE: SI 0.00%↑), the parent company of Silvergate Bank, failed to submit its annual report, stating that it expected further losses to previously reported unaudited Q4 2022 results. The company warned that “these additional losses will negatively impact the regulatory capital ratios [...] and could result in the Company and the Bank being less than well-capitalized.” In its Q4 2022 earnings release in January, the company disclosed a fire-sell of $5.2 billion worth of securities to meet withdrawal demands, which lead to a $718 million loss.

The shares of the company lost more than half of their value following the announcement, numerous company’s clients, including Coinbase, Circle, Paxos, and Galaxy Digital announced plans to stop banking with Silvergate, and the company made a decision to halt its Silvergate Exchange Network (SEN). SEN enabled the bank’s retail and institutional clients to send money to and from their accounts at numerous cryptocurrency exchanges. It looks like Silvergate might be the next victim of this cycle joining the likes of FTX, BlockFi, Celsius, and Voyager.

✔️ Silvergate stock crashes after company delays annual report, reveals new losses
✔️ Crypto Firms Ditch Silvergate, a Favorite Bank Partner
✔️ Bitcoin Sinks to Two-Week Low as Silvergate Fallout Hurts Crypto
✔️ Coinbase Volume Surpasses Uniswap’s, Countering Expectations for a DEX Surge
✔️ Coinbase Has Acquired One River Digital Asset Management
✔️ Robinhood says SEC issued subpoena related to crypto operations
✔️ Robinhood and Coinbase Stock Jump. Crypto Regulation Fears Might Be Fading
✔️ Visa, Mastercard pause crypto push in wake of industry meltdown
✔️ Jack Dorsey’s Block to Tap Bitcoin Reserves for Lightning Network

Klarna Reports Strong Growth in Q4 2022, Plans to Return to Profitability by the Summer

Klarna, one of the largest “Buy Now Pay Later” lenders in the world, reported its Q4 and full-year 2022 results this week. In Q4 2022, Gross Merchandise Volume grew 19% YoY to SEK 242 billion ($22.6 billion), revenue increased 20% YoY to SEK 5.6 billion ($526 million), and net operating income increased 29% YoY to SEK 5.2 billion ($481 million). The company reported an Operating Loss of SEK 2.0 billion ($186 million) and a Net Loss of SEK 1.9 billion ($176 million), compared to an Operating Loss of SEK 3.5 billion ($396 million) and a Net Loss of SEK 4.6 billion ($523 million) a year ago.

Klarna executed two rounds of layoffs in 2022, cutting more than 10% of its workforce, which started translating into lower operating expenses in the second half of the year. At the same time, the company continued to scale its operations in the United States, as well as diversify its income streams. Thus, the U.S. became Klarna’s largest market by revenue in December, while marketing revenue increased 131% YoY and contributed 10% of the company’s total global revenue in Q4 2022 (marketing revenue represents the fees that the company charges merchants for referring clients from its web and mobile properties). The company plans to return to profitability by the summer.

Curious to learn how Klarna stacks up against its U.S. competitor Affirm? 👉🏻 “Fintech Rivalries: How Fintech Companies Stack Up Against Each Other”

✔️ Klarna Narrows Losses as Growing Customer Base Keep Repaying
✔️ Payments firm Klarna posts smaller Q4 loss, eyes return to profit
✔️ Klarna posts $1bn annual loss, its largest ever
✔️ Klarna Is Not A Buy Now, Pay Later (BNPL) Company

Marqeta Stock Plummets on Weak 2023 Guidance and Growth Headwinds

Marqeta (NASDAQ: MQ 0.00%↑), an issuer processor that powers payment cards of such companies as Square, Cash App, Afterpay, Klarna, Affirm, and Uber, reported its Q4 2022 results on Tuesday. It was the first earnings call for the company's new CEO, Simon Khalaf. In Q4 2024, Total Processing Volume rose 41% YoY to $46.7 billion, net revenue increased 31% YoY to $203.8 million, and gross profit grew 15% YoY to $87.1 million. The company reported a Net Loss of $26.3 million and an Adjusted EBITDA of negative $7.5 million for the quarter, compared to a Net Loss of $36.8 million and an Adjusted EBITDA of $1.2 million a year ago. Marqeta’s stock plummeted after the earnings by more than 20%, finishing the week down 15.21%, as the company’s guidance disappointed investors.

Thus, the company guided for a 26-28% YoY growth in revenue and a 14-16% growth in gross profit (which translates to $209-213 million in revenue and $85-87 million in gross profit), as well as an Adjusted EBITDA margin of negative 5-6% (negative $11-13 million). Marqeta’s management highlighted multiple headwinds that the company will be facing in 2023, including slower growth of its BNPL customers, renegotiation of agreements with key clients, and new agreement terms with VISA. The company expects to accelerate growth in 2024; however, these plans are subject to the successful extension of the partnership agreement with Block, which expires in April 2024. In Q4 2022 Block contributed 74% of the company’s revenue.

✔️ Marqeta Reports Fourth Quarter and Full Year 2022 Financial Results
✔️ Marqeta is optimistic about the long term despite projecting slower growth for 2023
✔️ Marqeta Shares Hit By Onslaught of Terrible News
✔️ Despite Embedded Finance’s Promise, Slowing BNPL Growth Sends Marqeta Shares Plummeting 

Shift4 Payments Provides Strong Guidance, Prepares for Aggressive European Entry in 2023

Shift4 Payments, a merchant acquirer servicing restaurants, hotels, and stadiums, reported its Q4 2022 results on Tuesday. In Q4 2022, Payment Volume rose 55% YoY to $20.7 billion, gross revenue increased 35% YoY to $537.7 million, and gross profit grew 78% YoY to $138.3 million. The company reported a Net Income of $38.5 million and an Adjusted EBITDA of $94.4 million, compared to a Net Loss of $13.7 million and an Adjusted EBITDA of $44.0 million a year ago. The company guided for $2.5-2.7 billion in revenue and $410-435 million in Adjusted EBITDA in the full year of 2023, which would represent a 30% YoY growth in revenue and 46% YoY growth in Adjusted EBITDA at the mid-point of the guidance.

A year ago Shift4 announced its intention to acquire two companies, The Giving Block, a platform for non-profits to accept cryptocurrency donations, and Finaro, a European e-commerce acquirer with a banking license. The two acquisitions were “expected to contribute over $15B of end-to-end payment volume and $35M of adjusted EBITDA in 2023”. In addition, the acquisition of Finaro was expected to provide a springboard for the company’s European expansion plans. The acquisition of Finaro is still pending regulatory approval, but Shift4 founder and CEO, Jared Isaacman, is optimistic about the company’s prospects to “begin processing payments across Europe for many hotels, restaurants, and stadiums [in 2023].” The company’s guidance does not include the contribution from Finaro.

Interested in learning more about Shift4 Payments? 👉🏻 “Shift4 Payments Profile (NYSE: FOUR): more payments, less software”

✔️ Shift4 Q4 2022 Shareholder Letter
✔️ Shift4 CEO on consumer confidence, partnership with PayPal
✔️ Shift4 adds PayPal’s checkout tools

In Other News

✔️ Sequoia and Andreessen Horowitz invested more in fintech than any other sector
✔️ CFPB Publishes Findings on Financial Profiles of Buy Now, Pay Later Borrowers
✔️ Why Goldman’s consumer ambitions failed
✔️ Goldman Sachs Was Once a ‘Vampire Squid.’ Now It’s Just an Average One
✔️ Goldman Considers Shrinking Its Consumer Business
✔️ Visa aims to lower credit surcharge
✔️ PayPal Is Searching for a CEO Who Can Reverse Its $279 Billion Stock Drop
✔️ Stripe Slashes Valuation of $55B Funding Campaign
✔️ Brazil's PagSeguro Q4 profit jumps 35%, beating forecasts
✔️ Payoneer Reports Fourth Quarter and Full Year 2022 Financial Results
✔️ Flywire Reports Fourth Quarter and Fiscal-Year 2022 Financial Results
✔️ Consumer Lender Zip Abolishes Global Plans After 95% Share Drop
✔️ A Year of Better Banking: SoFi Checking and Savings Turns One
✔️ Acura Names Upstart Auto Retail a Preferred Digital Retail Provider
✔️ Wealthfront to Offer Trading of Individual Stocks, Fractional Shares

Cover image: Microsoft Bing Image Creator, Powered by DALL·E, prompt “a bank from Sweden becomes wildly successful in the United States, but still loses a lot of money for investors, cubism”

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.