New study “Fintechs and the stock market”

New study “Fintechs and the stock market”

Calyptus presents the main findings of the first perception study dedicated to the fintech sector on the stock market.

5 questions to Mathieu Calleux, General Manager of Calyptus

Mathieu, what gave you the idea for this survey on fintechs and the stock market? How did you go about it?

At Calyptus, we’re interested in the fintech sector, but it seemed to us that it wasn’t very well represented on the stock market. At the same time, more and more fintechs seem to be interested in IPOs, particularly in a valuation context where the stock market is more competitive than before compared with private equity.

We wanted to understand what might be hindering or encouraging the sector’s development on the stock market, by questioning investors on the theme of “Fintechs and the Stock Market”. To conduct this qualitative survey, we interviewed 15 managers, mid-cap specialists and analysts, based on a list of open-ended questions. Sébastien Ribeiro from Amiral Gestion helped us design the questionnaire, and Jérôme Hervé from Euronext provided an objective view of the subject by sharing Euronext data. Many thanks to both of them and to all the investors who agreed to contribute.

1/ The perception that emerges from this study is that the fintech sector is poorly represented on the stock market and little known by investors. Can you tell us more about this?

Yes. One might expect that, as they themselves belong to the financial industry, the managers would know the sector well. This is not the case: some even go so far as to equate biotechs and fintechs in their perception. It’s important to bear in mind that mid-cap managers are generalists: listed companies or IPO candidates therefore need to be very educational. On the other hand, there are a number of specialist analysts who have quite detailed expertise in the sector, as there is a base of listed fintechs in Europe which, even if limited, is sufficient for fintech “verticals” to exist among brokers.

2/ Is this under-representation of fintechs due to the fact that they are more difficult to analyze?

We asked the panel if there were any indicators specific to fintechs that could be analyzed. The answer is unanimous: the market primarily applies traditional analytical methods to value them, the first of which is DCF, i.e. discounted future cash flows. Sector-specific criteria come second: in particular, indicators such as ARR (Annual Recurring Revenue), ramp-up and retention rate, which measure the recurrence of revenues – a Fintech characteristic that appeals greatly to investors. However, expectations in terms of specific criteria are also very much focused on extra-financial aspects: providing the keys to assessing regulatory risk, barriers to entry, fraud risk, social risk and therefore the ability to recruit and retain highly sought-after profiles.

3/ Should I wait until I’m profitable before going public?

One of the respondents told us “if I had to be profitable, I’d never make another investment”, so not necessarily. But while profitability in year N or N-1 is not a prerequisite, they all require close to 3-year profitability. And they want to have a “very clear, non-speculative” view of profitability. In particular, this means enabling investors to fully understand the model and distinguish between overall profitability and the profitability of operations: the latter must be positive right away.

4/ The model is therefore a strategic choice, so should we be disruptive or collaborative with the banks?

We asked investors whether they were looking for a fintech that competes with banks, or one that works with them to complement their offering. And we can see that there is no consensus on this issue. The less risk-averse are in favor of a disruptive model, which they believe offers more value, particularly at the point of exit: if there are no partner banks, there will be more candidates for buyout. For others, the collaborative model seems less risky and more realistic, as the critical mass needed to compete with the banks is difficult to achieve.

5/ In conclusion, will the stock market one day be replaced by fintech?

We expected to get some wacky answers to this question, but it was taken very seriously. The vast majority of respondents believe that regulation and centralization are inseparable, and that they are the pillars of stock market operation. Investor confidence is based on a centralized market. This is not stopping the stock market from going digital and new players from emerging, particularly in blockchain technologies.

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