Fintech Headlines: January 23 - 29, 2023

Stripe expands partnership with Amazon, sets deadline for IPO decision, LendingClub reports Q4 2022 results, provides muted guidance for 2023, VISA and Mastercard beat earnings estimates

This Week in the Markets

On Thursday, the U.S. Department of Commerce reported that U.S. GDP increased at an annual rate of 2.9% in Q4 2022 (down from 3.2% in Q3 2022, and exceeding expectations of a 2.8% increase). On Friday, the department reported that core PCE inflation, the Federal Reserve’s preferred measure of inflation, increased at an annual rate of 4.4% in December (down from 4.7% in November, and in line with expectations). Inflation is cooling down, but the economy does not seem to be collapsing as many economists predicted. All major indices posted weekly gains.

🟢 Shopify (NYSE: SHOP 0.00%↑): shares of the e-commerce disruptor Shopify advanced 23.72% during the week, as investors welcomed the company's move to increase prices on its Basic, Shopify, and Advanced subscription plans for sellers (apparently, it was the first price increase in 12 years).

🔴 LendingClub (NYSE: LC 0.00%↑): shares of the online lender LendingClub declined more than 10% after the company reported its Q4 2022 results and provided dim guidance for 2023 originations (more on that below). The stock partially recovered on Friday, finishing the week down by 5.04%.

Next week the following Fintech companies will report their Q4 2022 earnings: SoFi (NASDAQ: SOFI 0.00%↑) on Monday (before market open), Lightspeed Commerce (NYSE: LSPD 0.00%↑) and Bill (NYSE: BILL 0.00%↑) on Thursday (before market open and after market close respectively).

✔️ U.S. GDP rose 2.9% in the fourth quarter, more than expected
✔️ US Economy Cools Like the Fed Wants, Still Risks a Stall in 2023
✔️ Key Fed inflation measure eased in December while consumer spending declined
✔️ Key Inflation Gauge Cools Further, Paving Way for Smaller Fed Rate Hike
✔️ Consumer Spending Fell 0.2% in December as Inflation Cooled

Stripe Expands Partnership with Amazon, Sets Deadline for IPO Decision

Stripe announced expanding its partnership with the e-commerce giant Amazon. Under the new agreement, “Stripe will become a strategic payments partner for Amazon in the US, Europe, and Canada, processing a significant portion of Amazon’s total payments volume across its businesses, including Prime, Audible, Kindle, Amazon Pay, Buy With Prime, and more.” The companies first partnered in 2017, when Stripe started helping Amazon with its e-commerce business in Europe and Asia. Amazon reported net sales of $127.1 billion in Q3 2022, of which $53.5 billion came from the “online stores” segment, $28.7 billion from the “third-party seller services” segment, and $8.9 billion from the “subscription services” segment.

Image source: Stripe

This week Stripe has also hired Goldman Sachs to explore a potential IPO. Per the Wall Street Journal report, the company’s co-founders, Patrick and John Collison, told employees that they have set the goal of either taking the company public or “allowing employees to sell shares in a private-market transaction within the next 12 months.” Stripe was valued at $95 billion at its last funding round in March 2021, but has cut its internal valuation to $63 billion in January 2023. In 2021, the company revealed gross revenues of $12 billion and profitability on an EBITDA basis. We are yet to see if the company will be able to hold to its valuation in the public markets, but it would certainly become one of the largest publicly traded Fintech companies.

✔️ Amazon-Stripe partnership accelerates ecommerce and streamlines payments
✔️ Stripe Sets One-Year Timetable to Decide on Going Public
✔️ Stripe tells employees it will decide on an IPO within the next year
✔️ Stripe tried to raise more funding at a $55B-$60B valuation

LendingClub Reports Q4 2022 Results, Provides Muted Guidance for 2023

LendingClub club reported its Q4 2022 and full-year 2022 results. The company reported $2.5 billion in loan originations for the quarter, down from $3.1 billion in Q4 2021 and $3.5 billion in Q3 2022. Total net revenue of $262.7 million for the quarter was comparable to the prior-year period ($262.2 million), but Net income decreased from $29.1 million in Q4 2021 to $23.6 million in Q4 2022. On a full-year basis, the company reported total net revenue of $1.2 billion, representing a 45% growth compared to 2021, and a net income of $289.7 million (and $146.2 million excluding tax benefit), compared to a net income of $18.6 million in 2021.

The company pre-announced key metrics earlier in the month, so the decline in origination volumes for the quarter, as well as revenue and net income numbers, were not a surprise to investors. However, the company’s Q1 2023 guidance seems to have upset investors, as the stock declined more than 10% following the earnings report. Thus, the company guided for $1.9 to $2.2 billion in loan originations, and $55 to $70 million in “pre-provision net revenue” (total net revenue less non-interest expense) in Q1 2023. Let's see how other consumer lenders performed in the last quarter of 2022. SoFi (NASDAQ: SOFI 0.00%↑) will report its Q4 2022 results on January 30, Affirm (NASDAQ: AFRM 0.00%↑) on February 8, Upstart (NASDAQ: UPST 0.00%↑) on February 14, and Pagaya on February 15 (NASDAQ: PGY 0.00%↑).

Recommended reading before the upcoming earnings calls:
👉🏻 SoFi Q3 2022 Earnings Review: the last lender standing
👉🏻 Affirm Fiscal Q1 2023 Earnings Review: can a BNPL business be profitable?

✔️ LendingClub Reports Fourth Quarter and Full Year 2022 Results
✔️ LendingClub Declines on Dim Forecast for Loan Originations
✔️ LendingClub explains recent layoffs, strategy shift in Q4 earnings
✔️ LendingClub to Cut 225 Workers, Take Charges of $5.7 Million

VISA and Mastercard Q4 2022 Earnings Beat Expectations on Resilient Consumer Spending

VISA (NYSE: V 0.00%↑) and Mastercard (NYSE: MA 0.00%↑) reported their Q4 2022 results on Thursday, both beating earnings per share expectations. Thus, VISA reported a GAAP Net Income of $4.2 billion on Net Revenues of $7.9 billion, which represents a 6% and 12% YoY growth in net income and revenues respectively. Mastercard reported a GAAP Net Income of $2.5 billion on Net Revenues of $5.8, which represents a 6% and 12% YoY growth in net income and revenues respectively (yes, the growth rates were identical to VISA’s). VISA reported $2.18 in non-GAAP EPS, compared to $2.65 in non-GAAP EPS reported by Mastercard.

The payment giants continued to benefit from payment volume growth and recovery in cross-border payments. “We saw stable payments volume and processed transaction growth and a continued cross-border travel recovery,” commented VISA’s CEO in the earnings release. Thus, VISA reported a 1.7% YoY growth in global payment volume (6.8% YoY excluding the impact of FX rates), while Mastercard reported a 4.0% YoY growth in global purchase volume (10.6% YoY excluding the impact of FX rates). VISA also reported an 11% YoY in cross-border volume (22% YoY excluding the FX impact), compared to the 20% YoY growth in cross-border volume (31% YoY excl. the FX impact) reported by Mastercard.

✔️ Mastercard Earnings Flash Signs of ‘Remarkably Resilient’ Consumer
✔️ Mastercard warns of slowing revenue growth despite resilient consumer spending
✔️ Visa’s Earnings Beat Expectations Thanks to Overseas Spending
✔️ Visa, Mastercard See Card Spending Slow as Inflation Persists
✔️ AmEx shrugs off slowdown worries after forecasting upbeat full-year profit
✔️ DOJ probing Visa on U.S. debit card practices, competition

In Other News

✔️ Why Shopify’s New Pricing Plan Is Driving the Stock Higher
✔️ Americanas Crash Lifts MercadoLibre to Best Ever Start to a Year
✔️ Analysts See a Slowdown in Consumer Spending. That’s Bad News for Block Stock
✔️ German cartel office initiates proceedings against PayPal
✔️ The big banks that brought you Zelle are building a new digital wallet
✔️ Banks Plan Payment Wallet to Compete With PayPal, Apple Pay
✔️ KAYAK and Affirm Partner to Help Travelers Book Now and Pay Over Time
✔️ Dutch central bank fines cryptocurrency exchange Coinbase 3.3 mln euros
✔️ JPMorgan: Coinbase Trading Volume Increases in January
✔️ Mizuho’s Dan Dolev breaks down his underperform rating on Coinbase
✔️ Coinbase Stock Has Soared on Bitcoin’s Rally. Watch for More ‘Headwinds’
✔️ Robinhood Has Something Coinbase Doesn’t. How It Can Help in a Crypto Winter
✔️ Marqeta Names Simon Khalaf as CEO
✔️ Who Pays for Your Rewards? Indebted Cardholders, Paper Finds

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.