Divining the Real Value of my Favorite Fintech sub-niche

Divining the Real Value of my Favorite Fintech sub-niche

Of course, we’re talking about buy-now-pay-later (BNPL) businesses today, a fascinating subset of the greater financial sector.

We’ve been coming closer to knowing just what the worth of the firms in the BNPL field may actually be, thanks to recent mega-buys of players in the space from Square and PayPal — and for the many BNPL startups in the market, it’s significant news.

Goldman Sachs chose to buy GreenSky, a public BNPL firm, while I was on vacation (Michael’s fault, it turns out). That means we can rapidly run the math on the deal and add another arrow to our quiver of How To Value A BNPL Company arrows.

Ryan Lawler, a friend and coworker — and former deskmate — has an interview with Goldman that is well worth reading. According to Goldman, the sale is worth $2.24 billion, sending GreekSky’s value considerably higher in the aftermath as investors processed the indicated offer premium to the company’s prior share price.

What kind of business did GreenSky’s home-improvement-focused BNPL generate? The company’s most recent earnings report is as follows:

Transaction Volume: Transaction volume in the second quarter totaled $1.5 billion, up 14% from the second quarter of 2020. Approved credit lines for the quarter were at an all-time high, indicating that the home improvement supply chain and labor constraints are easing.

So, at a cost of $2.24 billion, a $6 billion run rate is possible. GreenSky generates around $0.37 in business value for every dollar in GMV handled. This is the lowest amount we’ve ever seen. As a reminder, here’s what we’ve lately discovered, with both of us bearing in mind that not every figure is perfectly apples: apples; these are more directional figures than absolutes:

  • Affirm: $2.94 in serviced GMV value per dollar
  • $1.84 per dollar of serviced GMV after afterpay (at Square price)
  • $1.80 for every dollar of serviced GMV (at PayPal price)

GreenSky is ranked last on the list. Is it possible that the cause is growth? Even if the corporation obtains a better take rate, a 14 percent GMV growth rate leaves little room for expansion. It’s difficult to burnish a growth rate that starts with a one, especially if your investor relations page’s first sentence reads, “GREENSKY, INC. IS A GROWTH COMPANY.”