Consumer fintech trading revenues fail to meet SaaS ARR – Marketingwithanoy

Another groundbreaking analysis from your friendly Exchange team

After a long In the period of experimentation, investors have decided that consumer fintech trading companies are not SaaS companies, which means that those fintech revenues should not be valued as if they were annual recurring revenue (ARR), the main product of software-as-a -service concerns.

The point is important because in recent years a large number of consumer fintech startups have raised, spent and valued capital as if they were SaaS companies. This may have been an error.

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The fact that consumer fintech revenues will not be valued like SaaS revenues became apparent this week when Robinhood announced layoffs before earnings after seeing the public market value plummet and Coinbase trading at or near record lows — the US cryptocurrency trading platform has lost more than 65% of its peak value as of today, despite fairly robust profitability.

Both companies were once worth multiples of their present value, and each saw their shares swap hands before going public at higher prices than they enjoy today. So what happened? Polite, optimism. Less polite? A little greed. Let’s talk about it.

Trading earnings are good, but not great

Robinhood is a great idea for a business. Thanks to Payment for Order Flow (PFOF), Robinhood realized that it could provide low-cost consumer commerce and still generate large revenues for itself. This was similar to finding an exploit in a video game, only the game was the stock market and the exploit was a potentially temporary setup in which selling consumer order flow is legal and palatable.

As the savings and investment boom in the COVID era took off, Robinhood saw its user base and trading volume – and therefore trading revenue – soar. The unicorn ran into trouble when his tech, accounts, or both were smashed during the memestock cycle, but overall Robinhood grew to its IPO and posted some early adjusted gains.

Coinbase got related tailwinds during COVID, riding along with the boom in global demand for crypto assets. Thanks to a market that will still bear trading costs, Coinbase made a coin as both individuals and institutions were engaged in buying and selling digital assets.

Investors, who watched the two companies while still private, saw rising consumer demand, regular revenue per user and thick margins. Software companies are inherently attractive businesses thanks to their high gross margins, and with users engaged in transactions, I suspect the founders and investors in the two companies were content to value them more as SaaS companies – where revenue is often contracted and the tendency over time as customer use continues.

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