Fintech Headlines: March 13 - 19, 2023
Stone reports another profitable quarter, Banco Inter reports 25 million customers, Blend's revenue declines on falling mortgage originations, MoneyLion exits 2022 with positive Adjusted EBITDA
Stock Market Update
This week, eleven U.S. banks deposited $30 billion in First Republic Bank (NYSE: FRC 0.00%↑) and the Swiss National Bank provided a 50 billion Swiss Francs ($53.7 billion) credit line to Credit Suisse (SWX: CSGN) in an attempt to prevent further contagion. U.S. banks also borrowed $164.8 billion from the Federal Reserve during the week to shore up their balance sheets. Nevertheless, the banking sector struggled to regain investor confidence with the S&P Financial Select Sector Index (NYSEARCA: XLF 0.00%↑) declining 5.92% during the week.
The struggles of the banking sector made investors question the Federal Reserve’s ability to raise the fed funds rate further. Thus, the CME FedWatch tool now estimates a 0% probability of a 50 basis points hike at the next FOMC meeting (March 21-22), compared to a 68.3% probability just last week. CME FedWatch tool estimates a 62.0% probability of a 25 basis point increase and a 38% probability of the rates remaining unchanged. Expectations of lower rate hikes triggered a rally in risk-on assets, including growth stocks and cryptocurrencies.
In the meantime, the U.S. Labor Department reported consumer and producer price inflation data for February. Thus, the Consumer Price Index rose 0.4% MoM and 6.0% YoY, which was in line with economists’ estimates. CPI increased 0.5% MoM in January. Producer Price Index unexpectedly declined 0.1% MoM, and advanced 4.6% YoY. PPI increased 0.3% MoM in January. Finally, the U.S. Commerce Department reported that retail sales declined 0.4% MoM. The Fed’s measures in fighting inflation seem to be working, but the question is if they can stay the course.
🔴 The shares of Blend (NYSE: BLND 0.00%↑) and Inter&Co (NASDAQ: INTR 0.00%↑) declined 32.67% and 19.90% respectively after the companies reported their Q4 2022 results (more on that below). The shares of Katapult (NASDAQ: KPLT 0.00%↑) continued to decline on analysts’ downgrades after the company reported its Q4 2022 results last week.
✔️ Eleven Banks Deposit $30 Billion in First Republic Bank
✔️ Credit Suisse’s Former Top Shareholder Just Bailed on the Stock
✔️ Credit Suisse Seeks Circuit Breaker With $54 Billion Line
✔️ Credit Suisse Crisis Nears Finale as UBS Discussions Heat Up
✔️ Inflation gauge increased 0.4% in February, as expected
✔️ Wholesale prices post unexpected decline of 0.1% in February
✔️ Economy Shows Signs of Cooling as Bank Troubles Spread
✔️ Fed poised to approve quarter-point rate hike next week
✔️ Stocks Fall on Bank Jitters Despite First Republic Rescue
This week I published a review of SoFi’s Q4 2022 results (requires paid subscription): “SoFi Q4 2022 Earnings Review: the last "adjusted" year?”. SoFi became a bank holding company in 2022 following the acquisition of Golden Pacific Bank, and aims to reach GAAP profitability in 2023. However, the company’s plans might be derailed by the headwinds to its personal loans business and a threat of yet another extension of the student loan repayment moratorium.
Markets in Crypto-Assets
Cryptocurrencies rallied this week with Bitcoin price increasing 36.0% and Ethereum price increasing 25.4%. The turbulence in the banking sector clearly had an impact on the crypto asset prices, but the interpretations of this impact differ. I believe the trigger was the change in investors’ expectations with respect to the Federal Reserve's ability to increase rates further (and thus, the rally in the risk-on asset prices), while some believe that people find safety in crypto assets in times of uncertainty in the banking sector (“be your own bank” promise of crypto).
Shares of mining companies followed the rally in cryptocurrency prices. Thus, shares of Marathon Digital (NASDAQ: MARA 0.00%↑), Riot Platform (NASDAQ: RIOT 0.00%↑), Hut 8 Mining (NASDAQ: HUT 0.00%↑), and HIVE Blockchain Technologies (NASDAQ: HIVE 0.00%↑) advanced 53.28%, 52.83%, 49.21%, and 29.79% respectively. Shares of Coinbase (NASDAQ: COIN 0.00%↑) rose 40.31%.
In the meantime, the Ethereum community prepares for the Shapella upgrade, which will allow unstacking, Fidelity Crypto rolled out its Bitcoin and Ether offering to over 40 million Fidelity customers, and Coinbase considers establishing a trading venue for its corporate customers outside of the United States.
✔️ Bitcoin Believers Revel in Told-You-So Moment, Big Rally as Banks Crumble
✔️ Fidelity Crypto went live, giving millions of retail customers access to bitcoin, ether
✔️ Ethereum's next big upgrade Shapella expected to hit mainnet on April 12
✔️ Staked ETH Withdrawals Being Processed on Ethereum Goerli Testnet
✔️ FDIC Denies Report Signature Bank Purchaser Must Divest Crypto
✔️ Coinbase Explores Overseas Venue as US Ramps Up Crypto Scrutiny
✔️ Coinbase opens local bank transfers for Singapore users at no cost
✔️ Crypto exchange Binance to halt sterling transfers
✔️ Marathon Digital Holdings Reports Fourth Quarter and Fiscal Year 2022 Results
Stone Reports Another Profitable Quarter, Plans to Resume Lending in Late 2023
Brazilian merchant acquirer Stone (NASDAQ: STNE 0.00%↑) reported its Q4 2022 and full-year results on Tuesday. The number of active payment clients increased 46% YoY to 2.58 million and the total number of banking clients increased 41% to 0.69 million. Quarterly Total Payment Volume increased 12% YoY to R$100.1 billion, driven by a 28% YoY increase in the “Micro and Small Business Merchant” segment, and offset by an 18% YoY decline in the “Key Account” segment". Revenue for the quarter increased 44.5% YoY to R$2.71 billion, driven by a 49% growth in Financial Service revenue, and a 21% growth in Software revenue.
The company delivered another profitable quarter, reporting an Operating Income of R$254.3 million and a Net Income of R$78.8 million for the quarter, compared to an Operating Loss of $44.9 million and a Net Loss of R$801.5 million in Q4 2021. Stone was profitable in 2018, 2019, and 2020, reporting net income margins of 19.3%, 31.2%, and 25.2% respectively. However, the company’s fortunes turned in 2021 as it started facing mounting losses in its lending business and had to mark down the value of its stake in Banco Inter (NASDAQ: INTR 0.00%↑). In February 2023, the company sold its remaining stake in Banco Inter for R$218 million and plans to return to growth in its lending business in the second half of 2023.
Want to learn more about Stone (NASDAQ: STNE 0.00%↑)?
👉🏻 “Stone Profile: Warren Buffett's bet on Brazil's small businesses”
👉🏻 “Stone Q3 2022 Earnings: returning to profitability, one quarter at a time”
Banco Inter Reports Reports 25 Million Customers, Aims to Reach 60 Million by 2027
Speaking of Banco Inter (NASDAQ: INTR 0.00%↑)...Brazilian neobank reported its Q4 2022 and full-year results on Monday, reporting a 51% YoY increase in the total number of customers to 24.7 million (the company passed the 25 million customers milestone by the time of earnings release), and a 40% YoY increase in the size of the loan portfolio to R$24.5 billion. In Q4 2022, total net revenue increased 33% YoY to R$1.0 billion, driven by a 27% YoY increase in net interest income, a 57% YoY increase in net commission income, and an 11% YoY increase in income from securities. The company reported a R$28.8 million Net Income for the quarter, compared to a R$56.2 million Net Loss in Q4 2021.
Banco Inter gets less attention than its competitor Nubank (NYSE: NU 0.00%↑), yet its story is no less exciting. Founded in 1994 under the name Banco Intermedium, the company first focused on mortgage and payroll lending. In 2014 the company embraced a digital transformation journey, which culminated with its rebranding into Banco Inter. As of today, the company is offering a full suite of banking products, including accounts, payments, cards, lending, insurance, and securities trading. The company first went public in Brazil in 2018, and after reorganization and approval from its shareholders relisted on NASDAQ in June 2022. The company announced a goal of reaching 60 million clients by 2027 during its investor day in January 2023.
Brazil is the home for many exciting Fintech companies, including the world’s largest neobank, Nubank. Last year I wrote about a few of those 👉🏻 “Top Brazilian Fintech companies trading on US stock exchanges”
Blend’s Revenue Continues to Decline on Falling Mortgage Origination Volumes
Blend (NYSE: BLND 0.00%↑), a provider of cloud-based software for mortgage lenders, reported its Q4 2022 and full-year results on Thursday. The company reported $42.8 million in revenue for the quarter, a decline of 19% compared to Q4 2021. The gross profit margin declined from 61% in Q4 2021 to 44% in Q4 2022. The company reported a Net Loss of $81.4 million, compared to a Net Loss of $71.5 million in Q4 2021. On an adjusted basis, the company reported a Non-GAAP Loss of $49.3 million, compared to a Non-GAAP loss of $44.3 million in Q4 2021. In Q4 2022, the company served 346 clients (up from 343 clients in Q4 2021), including such well-known organizations as Wells Fargo, U.S. Bank, and BMO Harris Bank.
Last year was a challenging year for many growth companies, but it was especially difficult for Blend. The rise in interest rates triggered a decline in mortgage originations, particularly refinancing originations. Thus, according to the Mortgage Bankers Association, Q4 2022 mortgage originations declined 60% compared to Q4 2021 and 71% compared to Q4 2020. The association forecasts a further 16% decline in originations in 2023. Nevertheless, Blend’s software business (“Platform revenue” in the chart below) faired really well given the market conditions, and the decline in total revenue was driven primarily by the company’s title insurance business (“Title365 revenue” in the chart below).
In June 2021, the company acquired a title insurance broker, Title365, for $422 million. The logic behind the acquisition was to extend the capabilities of Blend Platform “to power the full consumer homebuying journey.” In Q4 2022, Title365 contributed $13.3 million in revenue, and a mere $1.3 million in gross profit, down from $54.5m million in revenue and $17.8 million in gross profit contribution in Q3 2021, its first quarter of being part of Blend. In 2022, Blend “recorded a full impairment of goodwill and customer relationship intangible assets acquired in the Title365 business combination”. The company might have written off Title365 goodwill, but it still has to repay the $225 million term loan it used to fund the acquisition.
MoneyLion Exits 2022 with Positive Adjusted EBITDA, Aims to Stay Profitable in 2023
MoneyLion (NYSE: ML 0.00%↑), a company that started as a neobank targeting “America’s middle class”, reported its Q4 2022 and full-year results on Tuesday. The total number of customers increased 97% YoY to 6.5 million and quarterly revenue increased 71% YoY to $94.9 million. The company reported a Net Loss of $136.2 million and an Adjusted EBITDA of negative $5.6 million for the quarter, compared to a Net Loss of $27.6 million and an Adjusted EBITDA of negative $31.9 million in Q4 2021. As per the management's comments on the earnings call, the company reached profitability an on Adjusted EBITDA basis in December 2022, and aims to deliver positive Adjusted EBITDA for the Fiscal Year 2023.
Similarly to Dave (NASDAQ: DAVE 0.00%↑) that I wrote about last week, MoneyLion’s core offering is the 0% APR cash advance of up to $500. The company monetizes its customer base through subscription fees (Credit Builder) and interchange fees (RoarMoney). However, in 2021, MoneyLion acquired a content agency Malka Media and an affiliate marketplace EVEN Financial. The acquisitions became the foundation of the company’s Enterprise segment, which in Q4 2022 accounted for 34% of the total revenue (see the chart below). The company’s stock didn’t fair much better than Dave’s though. Thus, the company went public through a merger with SPAC, which at the time valued the company at $2.88 billion. As of this writing, the market cap of MoneyLion was $148 million.
In Other News
✔️ Long-awaited Fed digital payment system to launch in July
✔️ MercadoLibre to invest $3.6 billion in Brazil this year
✔️ Robinhood Markets, Inc. Reports February 2023 Operating Data
✔️ Stripe announces new round of funding and plan to provide employee liquidity
✔️ Stripe’s $50 bln reset is relative sign of health
✔️ Affirm courts Amazon for more business
Cover image: Microsoft Bing Image Creator, Powered by DALL·E, prompt “mortgage market collapses, bankers look very sad, 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.