It turns out fintech is worth as much as SaaS

It turns out fintech is worth as much as SaaS

Fintech startups have had an incredible week. Remitly priced its IPO above its targeted range last evening, after the robust IPO pricing of Boston-based software and payments business Toast. The fintech firm from Seattle sold 12,162,777 shares (7,000,000 main) at $43 each. The company’s IPO equity had previously been set at a maximum price of $42 per share.

Remitly priced more like a middle-tier public SaaS corporation with recurring revenues and net-dollar retention north of 100% at $43 per share, rather than a fintech company with gross margins in the 50 percent to 60 percent range. Toast a similar sales multiple but much lower blended gross margins, thanks to a strong spike in its stock since it began trading yesterday.

The takeaway from today’s public markets appears to be that revenue growth matters more to fintech companies than near-term profits, allowing them to earn valuations that much above their final private levels. It is a fantastic set of numbers for fintech businesses; they are worth a lot more than they might have anticipated, or what their investors were willing to pay earlier.

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It turns out fintech is worth as much as SaaS

All of this is part of The Exchange’s recent assertion that the IPO window for venture-backed companies is wide open. It is possible that it is even better for fintech start-ups. Let us do the arithmetic and see when Chime and Klarna will finally get off their asses and go public.

Toast reported revenues of $424.7 million and revenue costs of $336.3 million in the second quarter of 2021, giving the firm a blended gross margin of little under 21%. Toast’s revenue split between high-margin SaaS and low-margin fintech, with smaller business lines hovering around breakeven. It comes to a somewhat low value. Toast has a run-rate multiple of 18.2x, according to Yahoo Finance data, and is worth $30.856 billion this morning. That is broadly in line with the median sales multiple for public SaaS companies, according to Bessemer statistics.

Our interpretation of the Toast revenue multiple is that public markets value it considerably more on growth than margins, implying that finance businesses with adequate near-term sales upside can accrete SaaS multiples regardless of gross margins.