PayPal IPO and the coming consolidation in Daily Fintech Index

By Bernard Lunn

You lose one, then you gain one. The Daily Fintech Index has lost Xoom (acquired July 7) and gained PayPal (who acquired XOOM) via their “IPO”. I put “IPO” in quotes because this is a spin off and searches for PayPal IPO bring up the original one in 2002.

LendingClub is currently the bellwether of the Daily Fintech Index. Their IPO was the Netscape moment for Fintech and their revenue multiple is 2x the next most highly valued. Lending Club is like in the SAAS market, all comparisons start there.

That may change now that PayPal is public (even though they are in totally different markets under that very large Fintech umbrella).

PayPal is an aggressive, acquisitive company that has already swallowed up:

  • Braintree in Sept 2013 for $800m. Braintree had previously acquired Venmo in 2012 for $26.2m.
  • Xoom in July 2015 for $890m.

The impact on the Remittances market is interesting. So I reached out to Laurent Oberholzer of Tawipay who wrote an article on Remittances on Daily Fintech earlier this year. This was Laurent’s comment:

“It marks the beginning of a consolidation phase which will see many smaller players being acquired by the incumbents (Western Union, MoneyGram, etc.) or the big challengers (WorldRemit, Azimo, TransferWise, etc.). I think the merger makes perfect sense. It’s a great opportunity for Paypal to make a foray into the remittance industry and position themselves as the one stop solution for all types of payments (transactional, P2P, etc.) across fixed and mobile devices. Xoom is also quite strong in receiving markets such as the India, China, the Philippines, Mexico, etc., which will help Paypal expand and strengthen its position in these markets. Given that Paypal is due to spin off from eBay on July 18 and will become a separate publicly-traded company, the timing is interesting as well. The challenge will be in expanding to sending markets outside the US, which amounts to ~80% of the global market.”

My objective in creating the Daily Fintech Index is to answer questions such as:

  • Are there any “growth at the right price” opportunities? These are stocks that have high growth without nose-bleed valuations.
  • Are there any acquisition-bait opportunities? These are stocks below $2bn in market cap (i.e. small cap) and with a fairly low valuation in fast-growing markets that somebody will acquire for a premium. XOOM scored on those criteria and voila…

I expect more consolidation in the Daily Fintech Index as the big ones gobble up the small ones. Lending Club has a powerful currency, so I would not be surprised to see them make some acquisitions. As we have a strange inversion where private valuations are higher than public valuations, acquiring public companies (even at a premium) makes sense.

This consolidation phase may reverse premium paid for private company, as investors bid up the shares of the undervalued public companies. That is a good thing for healthy markets where retail investors can hunt for bargains and short over-hyped ventures (which you cannot do in private stocks). This may bring back the crushed dream of a democratized stock market.

Consolidation will reduce the number of companies in the Daily Fintech Index. However there is a big line up of private companies at the IPO window. So the number of companies is likely to stay stable or grow bigger.


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    All the best

    Bernard Lunn Daily Fintech Mindshare To Marketshare (book on Amazon)

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