Fintech Headlines: October 31 - November 6, 2022

PayPal announces partnership with Apple, Block's Cash App posts strong growth, trading volumes on Coinbase continue to decline, Robinhood returns to Adjusted EBITDA profitability

This Week in the Markets

Federal Open Market Committee (FOMC) convened on Tuesday and Wednesday to discuss monetary policy and approve another 0.75% increase in the fed funds rate to a target range of 3.75%-4.00%. The rate increase was in line with expectations, but the issued press release triggered a short-lived stock market rally, as the committee promised to look beyond its inflation target and “to take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” Apparently, this single sentence was perceived as a sign of a policy change.

However, the Federal Reserve Chairman, Jerome Powell, in his press conference on Wednesday, said that future rate hikes might slow down going forward…but “the ultimate level of interest rates will be higher than previously expected”, as the jobs market remains unexpectedly strong and inflation remains annoyingly high. This comment sent the markets into deeply red territory. On Friday, the U.S. Labor Department backed the Chairman by reporting that the U.S. economy added 261,000 jobs in October, above the 205,000 jobs that economists expected. I guess Jerome Powell peeped at the jobs report before his speech.

✔️ Fed approves 0.75-point hike to take rates to highest since 2008
✔️ 10-year Treasury yield turns higher after Fed’s Powell says rates will go higher
✔️ Powell Sees Higher Peak for Rates, Path to Slow Tempo of Hikes
✔️ Fed Officials Eye Further Rate Hikes, With Possible Peak Above 5%
✔️ Still Hiring on All Cylinders
✔️ US Jobs Top Forecasts, Unemployment Up in Mixed Picture for Fed
✔️ U.S. Job Openings Rose in September in a Still-Tight Labor Market

This Week’s Gainers and Losers

↗↗ XP Investimentos (NASDAQ: XP 0.00%↑): shares of Brazil’s leading digital brokerage advanced 8.58% during the week, lifted, most likely, by the results of the presidential election that took place over the weekend. The iShares MSCI Brazil ETF rallied 7.69% during the week, and shares of Nubank, Inter, and Stone also advanced. XP Investimentos will announce its Q3 2022 results on Tuesday, November 8, 2022, after market close.

I published XP’s profile in September 2022 👉🏻 XP Investimentos Profile (NASDAQ: XP): the Charles Schwab of Brazil

↗↗ Lightspeed Commerce (NYSE: LSPD 0.00%↑): shares of the Canadian point-of-sale solution provider lost 22.37% following the announcement of the company’s Q3 2022 (Fiscal Q2 2023) earnings results. The company reported an Adjusted EBITDA loss of $8.5 million on total revenue of $183.7 million. The company delivered on its quarterly guidance but slightly cut the outlook for the full year (by ~1.5%). Cutting outlook seems to be a deadly sin this year.

I published Lightspeed’s profile in October 2022 👉🏻 Lightspeed Commerce Profile (NYSE: LSPD): software, payments, and the art of acquisitions

Next week we will see more Fintech companies reporting their Q3 2022 results: Shift4 Payments (NYSE: FOUR 0.00%↑) on Monday (Nov 7), Affirm (NASDAQ: AFRM 0.00%↑), Upstart (NASDAQ: UPST 0.00%↑) and Flywire (NASDAQ: FLYW 0.00%↑) on Tuesday (Nov 8), Marqeta (NASDAQ: MQ 0.00%↑), Payoneer (NASDAQ: PAYO 0.00%↑) and Olo (NYSE: OLO 0.00%↑) on Wednesday (Nov 9), Toast (NYSE: TOST 0.00%↑), MoneyLion (NYSE: ML 0.00%↑) and Paysafe (NYSE: PSFE 0.00%↑) on Thursday (Nov 10).

PayPal Lowers Revenue Guidance, Announces Partnership with Apple

PayPal (NASDAQ: PYPL 0.00%↑) reported its Q3 2022 results on Thursday, posting $1.33 billion in GAAP Net Income on total revenue of $6.85 billion. Net income increased by 22% and revenue increased by 11% compared to Q3 2021. The company lowered its full-year revenue guidance to $27.50 billion (representing an 8.5% YoY growth), but raised the full-year Non-GAAP EPS guidance to $4.07-$4.09. As a reminder, in February, at the company’s Q4 2021 earnings call, the company’s management guided for a 15-17% growth in revenue, and $4.60-$4.75 in non-GAAP EPS in 2022.

The company also announced reaching an agreement with Apple, under which PayPal merchants will be able to use their iPhones for accepting card payments (“Tap on Phone”), and PayPal’s consumers will be able to add their PayPal and Venmo debit cards to Apple Pay. In addition, PayPal will enable Apple Pay at its checkout solution. The deal was announced as a mutually beneficial partnership, but in its essence, this is nothing more than Apple exercising its might: there is no incremental revenue for PayPal, but it now has to pay Apple for every Tap on Phone or Apple Pay transaction.

✔️ Paypal drops on light revenue forecast for Q4
✔️ PayPal Drops After Cutting Forecast on Spending Slowdown
✔️ PayPal’s Turnaround Takes Hold
✔️ PayPal, Apple Reach Truce and Will Accept Each Other’s Products
✔️ After Stripe and Square, Venmo and PayPal are set to support Apple’s Tap to Pay on iPhones

Block’s Cash App Business Post Strong Growth

Block (NYSE: SQ 0.00%↑) reported its Q3 2022 results on Thursday, posting Net revenue of $4.52 billion, representing a 17% increase compared to Q3 2021, and a Net loss of $15 million, a sequential improvement from a Net loss of $208 million in Q2 2022. Square segment revenue grew by 27% YoY, contributing $783 million in gross profit, while Cash App segment revenue grew 12% YoY, contributing $775 million in gross profit. Excluding Bitcoin, Cash App segment revenue grew 50% compared to Q3 2021.

Cash App continues to be a bright spot for Block (which is not to diminish the importance of Square). Thus, the company reported 49 million monthly transacting active users, an increase of 20% compared to a year ago, and passed the milestone of $50 billion in customer inflows, which translates to an average of $1,046 in inflows per active user. When asked if the Cash App Card (used by 35% of active users) is the primary card for the company’s customers, Jack Dorsey, Block’s CEO, replied that “over time, we want to work toward being primary, because everything that you need in your financial life, you can find within Cash App.”

✔️ Block Shares Climb on Earnings Beat, Cash App’s Growth
✔️ Dorsey's Block posts a jump in revenue, boosting shares
✔️ Block Beats Expectations as Revenue Rises for Cash App and Square
✔️ Block Says Goal of Cash App Is To Be Primary Bank
✔️ CashApp adds support for Bitcoin Lightning Network

Trading Volumes on Coinbase Continue to Decline

Coinbase (NASDAQ: COIN 0.00%↑) reported its Q3 2022 results on Thursday, posting the third consecutive quarter of declining revenue and GAAP losses. Thus, the company reported $576.4 million in total revenue, which represents a 53% decline compared to Q3 2021, and a 28% decline sequentially. Net loss for the quarter was $545 million, compared to a Net income of $406 million a year ago, and a Net loss of $1.09 billion in the previous quarter. The sequential improvement in the Net loss came primarily from a smaller impairment to the crypto assets on the company’s balance sheet.

As the company is going through another crypto winter (the fourth in the company’s history), it is natural that the financial results are not great. However, the declining trading volumes, the key driver of the company’s revenue, are concerning. Thus, Coinbase reported $159 billion in trading volume for the quarter, down 51% YoY and 27% QoQ. Retail trading volume declined 43% QoQ, and institutional trading volume declined 23% QoQ. The company is notorious for charging premium fees, but at some point, those fees will decline, which, in combination with declining trading volumes, can spell trouble.

✔️ Coinbase Posts Third Consecutive Losing Quarter Amid Crypto Rout
✔️ Coinbase reports better-than-expected user numbers even as third-quarter revenue plunges
✔️ Coinbase Posts a Loss as Revenue Declines More Than Forecast
✔️ Coinbase Stock Is Getting a Boost From an Odd Place—the Federal Reserve
✔️ Coinbase’s Trading Business Is Hurting. But Earnings Show Growth Elsewhere
✔️ FTX Is Raising Fresh Cash, in Part for Acquisitions
✔️ Fidelity to open commission-free crypto trading to retail investors

Robinhood Returns to Adjusted EBITDA Profitability

Robinhood (NASDAQ: HOOD 0.00%↑) reported its Q3 2022 results on Wednesday, November 2, 2022, posting a Net loss of $175 million on total revenue of $361 million. Revenue declined 1.1% compared to Q3 2021, but increased 14% sequentially. A year ago, Robinhood reported a Net loss of $1.3 billion, as the company had to book $1.2 billion in share-based compensation (primarily of its co-founders) following the IPO. Sequential revenue growth was driven by higher net interest income, which is an income that the company earns on uninvested client balances, as well as corporate cash.

Earlier in the year, the company’s management committed to reaching Adjusted EBITDA profitability by the end of the year. The company calculates Adjusted EBITDA by adjusting EBITDA with share-based compensation, as well as one-off charges (such as redundancy compensation, and litigation expenses). The company executed two rounds of layoffs, shut down a few office locations, cut on marketing, as well as renegotiated several partner agreements. As the result, it reached its goal of Adjusted EBITDA profitability last quarter.

✔️ Robinhood Revenue Beats Estimates as User Activity Stabilizes
✔️ Robinhood Cuts Losses After Transaction Revenue Drops
✔️ Robinhood’s Results Are Latest to Fall Victim to Crypto Winter
✔️ Why Wall Street Is Cautiously Bullish on Robinhood
✔️ Robinhood’s Losses Were Smaller Than Expected. Activity Declined in the Quarter
✔️ Cathie Wood Is Buying Robinhood as Stock Bounces From Record Low
✔️ Fidelity Is Launching Crypto Trading. What It Means for Coinbase and Robinhood

In Other News

✔️ MercadoLibre Beats Profit Forecast, Sees Bad Loans Pile Up
✔️ Latam's MercadoLibre's net profit rises 36%, fueled by fintech
✔️ Brazil’s Election Gave Markets What They Wanted
✔️ Opendoor Announces Third Quarter of 2022 Financial Results
✔️ Opendoor Writes Down Home Inventory by $573 Million in Slump
✔️ Opendoor lays off 18% of staff amid real estate market slowdown, rising rates
✔️ Zillow Warns of Slower Business After Earnings Beat
✔️ Wells Fargo mortgage staff brace for layoffs as U.S. loan volumes collapse
✔️ SoFi Technologies, Inc. Reports Third Quarter 2022 Results
✔️ SoFi Stock Leaps on Narrower-Than-Expected Loss and Revenue Beat
✔️ SoFi stock rises on earnings beat, new member growth
✔️ Lightspeed Announces Second Quarter 2023 Financial Results
✔️ BILL Reports First Quarter Fiscal Year 2023 Financial Results
✔️ Alkami Announces Third Quarter 2022 Financial Results
✔️ FLEETCOR Reports Third Quarter 2022 Financial Results
✔️ Remitly Reports Third Quarter 2022 Results
✔️ Stripe to Cut 14% of Jobs
✔️ Digital bank Chime cuts 12% of workforce
✔️ Vanguard to Test Giving Retail Investors More Voting Power

Disclosure & Disclaimer: despite rocky performance in 2021 and 2022, I own shares in most of the companies that I write about in this newsletter, as I am extremely bullish on the transformation in the financial services industry. However, none of the above is financial advice, and you should do your own research.