Cooling Markets: Is the Fintech IPO Boom Finally Slowing Down?

The first half of 2021 looked to herald a golden age for fintech IPOs, but after some notable disappointing debuts, is the boom period finally beginning to slow down? 

In Q1 of 2021 alone, the number of fintech startups in the US crossed the 10,000 mark for the first time ever. Today, there are now three fintechs worth over $100 billion in Paypal, Square and Shopify, and a further three valued at between $50 billion and $100 billion in Stripe, Adyen and Coinbase (NASDAQ:COIN). 

However, while the fintech IPO market started the year full of confidence, there’s been some uncertainty surrounding how emerging fintechs will be valued across public markets. This can be a result of fintechs being relatively new to the ecosystem compared to other, more consumer internet or enterprise-focused counterparts. Further to this, fintech companies use a wide range of business models, and can operate on a largely transactional or more hybrid basis - adding to the confusion and complexity of valuations. 

One notable company to suffer from such uncertainty in the short term has been cryptocurrency investing platform, Coinbase, which struggled to build on opening day highs of $429.54, falling some 30% from its first-day closing price. 

Despite a difficult start to public life for fintechs like Coinbase, and a challenging opening week for Robinhood’s recent listing, the wider IPO market has been a runaway success across a record-breaking 2021 already. 

(Image: PwC)

As we can see from the chart above, the first half of 2021 alone has seen more total deals in the US than the entirety of 2020, and more than double that of the whole calendar year of 2019. But as significant public fintech listings continue to falter, are we witnessing the fintech IPO market running out of steam? 

Faltering Fintech IPOs

Some well-backed fintech companies have found the challenge of trading publicly a difficult one to overcome. 

Of the 18 US fintech that launched IPOs or opted for direct listings since January 2020, six were trading below their IPO price at the beginning of September, suggests data from S&P Global Market Intelligence. This concerning trend has allegedly led to some upcoming fintech IPO plans to be put on hold in the wake of a market that may be losing interest in the technology. 

Kegan Greene, director at Houlihan Lokey's data and analytics group said that “we've seen companies that were several months ago aggressively thinking about going down the IPO or SPAC route, and they've put those plans on hold just given the cooling of that market.”

It’s also worth noting the wider trends following the fintech market. For instance, the one-year total return of the S&P US Financial Technology Index was 22.26% on August 31st 2021, which is significantly behind the S&P 500% total return of 31.17% over the same time frame. 

Recently listed fintech companies like Coinbase, SoFi, Marqueta, Duck Creek and Lemonade have struggled to keep up with their respective benchmarks - even though some have been trading above their IPO price. 

Reasons To Stay Bullish

Despite some notable companies experiencing difficulty, there’s still plenty of evidence that the fintech IPO boom is far from over. Recently, Toast (TOST) stock climbed by double digits following an IPO that was priced comfortably above expectations for the financial technology services company. 

In all, Toast raised $870 million in the flotation, having priced 21.7 million shares at $40 - significantly higher than the advised range pinnacle of between $34 and $36. Initially, the company was aiming for a share price of between $30 and $33 - with the eventual increase being attributed to strong institutional investor interest. The initial public offering itself left Toast with a market cap of almost $20 billion. 

At the time of writing, Toast (NYSE:TOST) has been trading at around $55 - representing a 12% from its market peak of $62.51, but a sizeable increase on its initial offering ranges. 

Toast represents the latest in a long line of promising fintech firms that are latching onto emerging technologies to improve financial infrastructures across a range of industries. The company itself offers a cloud-based technology platform that’s been developed specifically for the restaurant industry - with a software-as-a-service operating model. The tech encapsulates an integrated payment processing solution in partnership with an ecosystem of third-party providers. 

In Toast’s wake, new fintech firms may feel emboldened to launch IPOs despite the struggles of their industry-leading counterparts. With emerging firms like Alchemy Pay and Connectum - the latter of which has generated a borderless multi-currency processing one-click payments system built within an artificial intelligence-driven security system - latching on to developing technology within the modern finance ecosystem, the optimistic launch of Toast may serve as a glimpse towards a lucrative future. 

The fintech ecosystem may have led to a series of underwhelming flotations among well-backed startups, but the industry only appears to be warming up with a long conveyor belt of exciting endeavours on the horizon. It’s down to these fresh startups to keep fintech thriving alongside the ongoing IPO boom.