Within the wake of the rescues of SVB UK and Credit score Suisse, the banking sector is in uneven waters. Fintechs aren’t faring a lot better; final week Stripe closed one of many largest inventory gross sales in US historical past at a halved valuation, after each Klarna and Checkout.com noticed their worth tags slashed drastically final 12 months.
Revolut is at present Europe’s Most worthy personal startup, because it clings onto a public valuation of £27bn from a July 2021 fundraise led by SoftBank and Tiger. However now a few of its buyers are reevaluating their positions.
One of many world’s main secondary brokers, Setter Capital, has Revolut holdings listed at a reduction of greater than 50%, in line with paperwork seen by Sifted — and two fintech buyers additionally inform Sifted that various Revolut’s present shareholders have already marked it down internally.
Valuation in context
Revolut isn’t a simple enterprise to worth.
It has 28m international retail prospects — way over rivals Monzo (7m) and Starling (3.5m), that are targeted on the UK.
Not like them, nevertheless, it doesn’t have a banking licence — and but its valuation nonetheless dwarfs theirs.
Its £27bn valuation is extra akin to the incumbent UK retail banks that it’s aiming to disrupt. On the time of writing, its valuation is third solely to HSBC and Lloyds within the UK — regardless of having 12m fewer international prospects and never having the ability to lend or accrue curiosity on deposits.
HSBC reported a $17.5bn revenue in its final monetary outcomes (for the 2022 monetary 12 months), whereas Revolut’s stood at £39m ($48m) in its newest (for 2021).
Within the UK, Revolut is an electrical cash (e-money) establishment — like Checkout.com and SumUp — however its predominantly shopper focus means it primarily handles smaller funds volumes, whereas additionally having to cope with regulators for far more of its enterprise actions.
This implies extra working bills (like compliance hires) for fewer transactions — and but Revolut’s valuation is 2.5x that of Checkout’s ($11bn, after it revised its inside valuation) and far more than SumUp’s ($8.5bn).
Revolut just isn’t very worthwhile, but. In 2021, it recorded its first revenue earlier than tax — of £39m — because of revenues almost tripling, from £220m in 2020 to £636m in 2021.
That’s an enormous uptick, however Revolut’s present valuation remains to be a whopping 52x a number of on its 2021 revenues. Starling — the one different worthwhile European neobank — was valued at $3.3bn when it final raised in 2022. That represents a mere 14x a number of on its 2021 revenues, regardless of it having a banking licence.
In the meantime, HSBC’s market cap on the time of writing, £107bn, is round double its final reported annual revenues ($51.7bn, or £42bn).
Buyers could have been paying a “tech premium” for Revolut. Its easy interface, model, capacity to launch merchandise quick and higher-margin income streams — like crypto — have been its USP over a standard financial institution.
No banking licence
Revolut will be the greatest digital financial institution in Europe, however its buyers will need it to get nonetheless larger — and never having a banking licence within the UK will maintain it again. With out one, Revolut can’t change into a main checking account for UK prospects, or supply lending merchandise like mortgages — the important thing income sources it might must unlock to meet up with incumbents.
“To me it’s nonetheless a secondary account providing secondary merchandise, that are much more tough to monetise,” says one fintech investor. “The query is how will they attain these billions in income of incumbents in 10 years’ time with out main accounts.”
In an interview with Sifted earlier this month, Revolut CFO Mikko Salovaara mentioned the fintech’s UK banking licence was coming “imminently, shortly, within the very close to time period” — however there are nonetheless some vital roadblocks standing in its approach.
Considered one of Revolut’s greatest shareholders says the scale of the enterprise is slowing down its banking licence software (which it utilized for in January 2021). It presents some 50 services and products to its retail and enterprise prospects, which is an entire lot extra paperwork for regulators to get by than its rivals had in 2017.
But it surely’s doubtless not only a query of paperwork. The very regulator that should approve its banking licence software (the FCA) is identical one which’s flagged points with Revolut’s monetary crime defences — Sifted just lately revealed that UK buyer fraud complaints on the neobank are at an all-time excessive.
Its auditor BDO additionally acknowledged that 75% of Revolut’s 2021 revenues — that’s £477m of £636m — “could also be materially misstated”, owing to points with the corporate’s inside accounting methods.
It’s unlikely that may have helped the licence course of.
“On the licence facet, points with accounting aren’t taken evenly by regulators and even buyers,” says Gautam Pillai, an analyst at Peel Hunt.
Income potential
Revolut’s income streams are additionally altering — in a approach that’s prone to devalue the enterprise.
In 2021, crypto buying and selling accounted for 30% of Revolut’s revenues, CFO Salovaara informed Sifted — however this dropped to round 5% in 2022 because the crypto increase ended.
“2021 was an distinctive 12 months and replicating that received’t be straightforward,” an investor in a rival neobank says. “They are going to have misplaced a number of high-margin income from crypto and buying and selling and buyers will probably be what can substitute these margins.”
This 12 months, Salovaara mentioned Revolut is ready to learn from “a fairly sturdy tailwind from rate of interest will increase”. Because it’s not a financial institution, it has no obligation to pay again curiosity to prospects and might pocket it as income.
Like crypto, rate of interest rises received’t stick round ceaselessly although.
“[Investors will] be sturdy recurring income streams — individuals don’t like volatility and so they don’t pay for one-off good points,” says Pillai.
Exit worth
Revolut’s CEO Nik Storonsky has not dominated out fundraising once more — he informed Sifted final November that the neobank will come to market if it needs to shore up some additional cash for international enlargement.
If he did, he’d be tapping development buyers for capital — and so they’d wish to know concerning the firm’s path to IPO.
However the truth that Revolut’s auditor couldn’t confirm probably the most just lately accessible monetary figures for the corporate casts a giant shadow over their capacity to take action.
“When these revenues aren’t sure, it makes it extraordinarily tough for pre-IPO buyers to make an knowledgeable choice on what sort of exit could be achieved,” Pillai says.
“Privately, the valuation might be no matter, however as soon as it’s going public, buyers want not less than three years of audited monetary statements to assign it a good worth.”
Progress-stage and public market buyers can even be different listed tech and banking companies to assign a valuation — and the image isn’t fairly.
The tech-focused Nasdaq misplaced a 3rd of its worth in 2022 and Nasdaq-listed challenger financial institution Nubank’s shares have fallen virtually 9% this month within the wake of the SVB and Credit score Suisse information.
“If the US challengers get hammered [by customers withdrawing deposits] — given what’s taking place there with banks — that will probably be actually dangerous for European challenger banks,” says Radboud Vlaar, managing accomplice at Finch Capital.
“It complicates an IPO route, as they’d almost certainly must go by way of the US,” he provides.
Revolut will doubtless do all it might to keep away from having to fundraise and “mark to market” for so long as these jitters final.
A spokesperson for Revolut says the corporate doesn’t interact in hypothesis on its valuation and that secondary gross sales are solely permitted by Revolut’s Articles of Affiliation in restricted circumstances.
Amy O’Brien is Sifted’s fintech reporter. She tweets from @Amy_EOBrien and writes our fintech publication — you’ll be able to join right here.
