Consumer fintech trading revenue doesn’t keep up with ARR SaaS – TechCrunch

Another breakthrough analysis from your friendly Exchange team

After a long experimental period, investors have decided that consumer fintech business ventures are not SaaS companies, which means that such fintech revenue should not be valued as if it were annual recurring revenue (ARR ), the main product of software-as-a-service concerns.

This point matters because a slew of mainstream fintech startups have raised capital, spent, and valued in recent years as if they were SaaS businesses. This may be an error.

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The fact that consumer fintech revenue will not be valued like SaaS revenue was made clear this week, with Robinhood announcing layoffs ahead of earnings after seeing its public market value plummet and Coinbase is trading at or near record highs – the American cryptocurrency trading platform has lost more than 65% of its maximum value to date, despite rather robust profitability.

Both companies were once worth a multiple of their current value, and each saw its shares trade hands before going public at higher prices than they do today. So what happened? Politely, optimism. Less politely? A little greed. Let’s talk about it.

Trading income is good, but not great

Robinhood is a good idea for a business. With payment for order flow (PFOF), Robinhood realized it could offer zero-cost consumer commerce while generating big revenue for itself. It was like finding an exploit in a video game, only the game was the stock market, and the exploit was a possibly temporary setup where selling consumer order flow is legal and acceptable.

As the COVID-era savings and investment boom took off, Robinhood saw its user base and trading volume – and, consequently, trading revenue – skyrocket. The unicorn got into trouble when its tech, accounts, or both were pounded during the memestock cycle, but, generally speaking, Robinhood grew through to its IPO and saw early adjusted profits. .

Coinbase caught some tailwinds during COVID, riding the surge in global demand for crypto assets. Thanks to a market that will still incur trading fees, Coinbase has made a mint as individuals and institutions have busied themselves with buying and selling digital assets.

Investors, reviewing both companies while they were still private, saw increased consumer demand, steady revenue per user, and big margins. Software companies are inherently attractive businesses thanks to their high gross margins, and with users busy making transactions, I suspect the founders and investors of both companies were content to value them more as SaaS companies – where the revenues are often contracted and tend to increase over time as the customer’s use continues.

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