Sinking Robinhood reminds why lack of fundamentals & hiring too fast kills startups 🧠; Solana’s 7th outage this year highlights network inefficiencies 😬; Birth of the 2nd-biggest neobank in Europe📲
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👋 Hey, Linas here! Welcome to a 🔓 weekly free edition 🔓 of my daily newsletter. Each day I focus on 3 stories that are making a difference in the financial technology space. Coupled with things worth watching & most important money movements, it’s the only newsletter you need for all things when Finance meets Tech.
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As for today, here are the 3 FinTech stories that were moving headlines this week. It was a hot one!
Robinhood’s latest earnings show (again) the importance of fundamentals & why hiring too fast is one of the biggest killers of startups 🧠
The earnings call ☎️ Stock trading app Robinhood has posted its first quarterly earnings for 2022. The Q1 2022 results haven’t been great and hence their stock was down over 11% in pre-market trading after posting them.
More on this 👉 During the quarter ended March 31, the company saw decreases in trading volumes, monthly active users, and assets under custody. Here’s what you should know:
The number of Monthly Active Users (MAU) decreased 10% year-over-year (YoY), with 15.9M for March 2022, compared with 17.7M for March 2021.
It must be noted that the number of MAU has declined each quarter since hitting a high of 21.3M in the second quarter of 2021. In the most recent quarter, the number decreased by 8%, compared with 17.3M for December 2021.
Total net revenues decreased 43% to $299M, compared with $522M in the first quarter of 2021.
Transaction-based revenues decreased 48% to $218M, compared with $420M in the first quarter of 2021.
Net loss was $392M, or $0.45 per diluted share, compared with a net loss of $1.4B, or $6.26 per diluted share in the first quarter of 2021.
(Robinhood’s transaction-based revenues since 2020)
On top of that, the brokerage app will cut 9% percent of its employees, citing an unwieldy growth curve that resulted in the creation of "duplicate roles and job functions".
This shows us a few things, most notably - the importance of business fundamentals & why hiring too fast could be a killer for your startup. Here’s the takeaway:
✈️ THE TAKEAWAY
Robinhood’s case study. As with many FinTechs, offering something for free is a brilliant way to attract lots of users. Yet, it might become very tricky when you actually need to make money. This is what Robinhood is learning as we speak. As you can see from the above shared Robinhood’s transaction-based revenue chart (since 2020), the end of the equities trading boom that powered the trading app’s hypergrowth has passed. As an effect, Robinhood’s controversial options trading revenues once again account for the majority of its transaction income, following declines in the value of stock trades and crypto trading activity. This pretty much explains why the $HOOD has lost more than 70% of its value since going public. Furthermore, it must be noted that during the stock trading boom, Robinhood’s headcount soared almost 6X from 700 to nearly 3800 so they could meet the customer and market demands (they reportedly have >4,000 people now as per LinkedIn). Now, 9% (~360) of them will be let go. This is yet another great reminder that hiring too fast is by far the biggest killer of startups that raise money. It killed Fast fast too. Zooming out, I can only repeat myself that in order to stay in the game, the $HOOD has to seriously rethink its business strategy.
Solana’s 7th outage this year highlights network inefficiencies 😬
The news 🗞 The Solana network has suffered its seventh outage this year as bots took down the network over the weekend. Solana went down due to a large number of transactions from the nonfungible token (NFT) minting bots.
More on this 👉 A record-breaking 4 million transactions, or 100 gigabits of data per second, congested the network causing validators to be knocked out of consensus resulting in Solana going dark. The bots hoarded a popular application used by Solana NFT projects to launch collections called Candy Machine.
The outage caused the price of SOL, the blockchain’s native coin, to crash by nearly 7% to $84, although trading since has seen prices recover and SOL is changing hands at around $88/coin at the time of writing.
This not only highlights the network’s inefficiencies but also makes one question the future of the “Ethereum killer”. Here’s the takeaway:
✈️ THE TAKEAWAY
The Ethereum killer, huh? It seems that often dubbed as the “Ethereum killer”, Solana has itself been killed at least several times this year. Well, 7 actually. Despite the fact that the recent outage didn’t have a sizeable effect on SOL’s price, we must note that the once darling of crypto has lost around 66% from its November all-time high of $260. That’s like tech stocks in public markets! Zooming out, one must stress that this not only highlights the network’s inefficiencies but also makes one really question the future of the “Ethereum killer”. One of Solana’s key propositions is that it claims to offer as many as 50,000 transactions per second. That’s massive, obviously. Yet, that figure is moot if it is at the expense of reliability and stability (which are crucial). The thing is that everyone knows that Ethereum is slower and more expensive to use. Nonetheless, it can’t be yet beaten for its reliability and stability. This hence is why it is still the industry standard despite the gas fees.
The birth of the second-biggest neobank in Europe 📲
The deal 🤝 Netherlands-based challenger bank bunq has announced that it plans to acquire Tricount, a mobile app to manage group expenses. bunq isn’t disclosing the terms of the transaction and the acquisition is pending regulatory approval.
USPs 🥊 Founded in 2015, Tricount is a way of tracking expenses as a group. The Belgian startup lets groups of people add expenses together, which can be useful when it is not the same person buying things for the group. Tricount has amassed quite a large user base with 5.4M users. The app is free with ads. There’s also an optional subscription that unlocks pro features, such as CSV exports and statistics. It competes with other mobile apps, such as Splitwise.
Founded in 2012, Bunq, is a European challenger bank based in Amsterdam.
✈️ THE TAKEAWAY
M&As and new leaders emerging. First and foremost, this move is rather big since it will add 5.4M new users to bunq, which means that the Dutch challenger is now Europe’s second-largest neobank, behind only Revolut. That’s definitely something to celebrate. Obviously, despite the fact that Tricount has a large audience, it doesn’t generate a lot of revenue per user. Yet, it could act as the top of the funnel for Bunq products and services (hence, more extra revenues). Zooming out, there’s clearly another trend seen here (again) - M&As as a growth factor for more mature FinTechs. And bunq seems to love this route as just recently made a direct move into Ireland following the acquisition of Capitalflow, an Irish specialist business lender that employs over 75 people. It seems that the European neobanking space is maturing.
🔎 What else I’m watching
More FinTech M&A 👀 Singapore-based digital payments startup Nium has reportedly planned to spend up to $400M in acquisitions to expand its European business. The company, whose software helps businesses manage flows of money across borders, is in talks to make an acquisition worth up to $400 million to drive an expansion in the continent, its CEO told CNBC. The firm is reportedly in discussions to buy enterprise-focused payments venture worth ‘anything between $20M to $400M. Watch out for more FinTech M&A!
Another hack 😬 Decentralized finance (DeFi) platforms Rari Capital and Fei Protocol were hacked and suffered a loss of more than $80M over the weekend. According to a tweet by smart contract analysis firm Block Sec, the hacker exploited a reentrancy vulnerability in Rari’s Fuse lending protocol. Following the hack, Rari said that borrowing had been paused globally and that no further funds were at risk. Fei Protocol has since offered the attacker the opportunity to keep $10M of the stolen funds as a “bounty,” as long as the remaining funds are returned.
Klarna & Credit Scores 👀 BNPL giant Klarna’s 16M UK customers will soon see their credit scores impacted when using Buy Now Pay Later (BNPL) products. From 1 June 2022, Klarna will begin reporting the use of BNPL products with Experian and Trans Union, two credit reference agencies. This will allow users to both build their credit history when Klarna purchases are paid on time as well as impact scores when late payments and unpaid purchases occur. It will apply to both Klarna’s Pay in 30 and Pay in 3 orders made on or after 1 June. Purchases made before 1 June will not be reported; neither will payments relating to purchases made before 1 June. Is BNPL going to become just credit? 🤔
💸 Following the Money
Google-backed neobank Open has reached the Unicorn status, making it the 100th Indian company to reach the $1B benchmark, through its latest funding round.
Xepelin, the B2B payments and financial services platform working in Latin America, has raised $111M in a Series B round including some from PayPal Ventures. The new funding will be used to add more growth, scaling B2B payments, and adding more talent, along with expanding to new countries in Latin America.
French startup Alan has raised a new €183M funding round ($193M at today’s exchange rate). The company sells its own health insurance products and has expanded to other medical products and services. In other words, Alan wants to build a healthcare super app and a one-stop shop for all your questions and needs when it comes to your health.
👋 That’s it for today! Thank you for reading and have a relaxing weekend! And if you enjoyed this newsletter, invite your friends and colleagues to sign up: