E-commerce isn’t what it used to be, so FinTechs & tech startups will have to adapt 💆🏾‍♀️; The curious case of Elliott Management, PayPal & Pinterest 🧐; Coinbase + Blackrock = 🚀

You're missing out big time... Weekly Recap 🔁

Aug 07, 2022

👋 Hey, Linas here! Welcome back 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.

If you’re not a subscriber, here’s what you missed this week:

As for today, here are the 3 FinTech stories that were making a difference this week. It was arguably the most intense week this year! (definitely check all the above stories!)

E-commerce isn’t what it used to be, so FinTechs & tech startups will have to adapt 💆🏾‍♀️

Spotting the trends 🔍 One of the craziest news last week was Shopify’s massive layoffs - because of unsuccessful bets & a difficult macro environment the Canadian e-commerce heavyweight had to say goodbye to 10% of its workforce, or nearly 1,000 employees.

Already then I said that this news gives us some hints for the future of FinTech (Shopify is a FinTech too) and digital businesses per se. Today, we can start spotting more trends that further strengthen the earlier guidance and provide us with a clearer picture of what we can expect in the future.

More on this 👉 Here are the things you can’t ignore:

Let’s start with Shopify. In addition to the massive layoffs, the stock market poster child for the e-commerce boom of 2020 and 2021 had also posted a quarterly loss and downwardly revised forecasts. Also, SHOP 2.85%↑ shares are down about 80% from highs last fall, which only symbolizes the broader sector woes.
Shopify is obviously not an outlier - others in the e-commerce software space, including relatively recent market entrants like BigCommerce and Global-e, are also down sharply. Even internet development heavyweight Wix WIX 5.05%↑ has lost more than 80% of its value past year.
But not only startups are suffering. The shares of retail giant Walmart WMT 0.71%↑(that has a sizable footprint in US e-commerce spare too) also tanked after the firm said it has to cut prices to reduce merchandise levels, which brings profits down. This is primarily happening because of inflation running at multidecade highs, hence, budget-strapped consumers are cutting back on discretionary spending.
Finally, the situation for retail-focused SaaS startups and investors isn’t very convenient too. Last year, investment in e-commerce software companies hit an all-time high, with more than $4.8B in global venture funding, as per Crunchbase data. This year started hot as well, with a decline in funding in the past couple of months only slightly offsetting a rollicking first quarter. Zooming out and looking at investments in the e-commerce space for the past 5+ years, we might say that it probably peaked last year (though we still have some time in 2022):

So what does this tell us? 🤔 It’s clear that e-commerce isn’t what it used to be, so FinTechs & tech startups will have to adapt. Here’s the takeaway:

✈️ THE TAKEAWAY

So what’s next? 🤔 First and foremost, let’s agree that the market conditions right now are sharply different than they were even a couple of quarters ago. Further, the swell in online shopping that began in the early days of the pandemic has since receded. Like Shopify, many e-commerce businesses, FinTechs, and other SaaS startups believed that the e-commerce space would permanently leap ahead by 5 or even 10 years. It didn't, of course. What is happening now is the reversal to roughly where pre-pandemic data would have suggested it should be at this point. This means that e-commerce software startups (VC-backed or not), e-commerce-related FinTechs, and other tech startups are likely to expect a similar trajectory. Consumers haven’t abandoned their online shopping carts and steady growth ahead is still expected, but it’s clear that the environment is now one in which supercharged growth will likely be much harder and costlier to achieve. Finally, this also means that you have to be more realistic with your growth projections, focus on profitability and rethink your omnichannel strategy (or pivot to one if you haven’t yet). Recession and/or fears of it, uncertain global macro environment, and overall instability can also shake up the transition to and growth of social commerce (hence impacting everyone relating to it).

The curious case of Elliott Management, PayPal & Pinterest 🧐

The news 🗞 Activist investor Elliott Management has reportedly taken an undisclosed stake in PayPal, the WSJ reported.

The report sent shares of PayPal as much as 10% higher in extended trading, slightly improving the 75% slump that shares of the California-based FinTech have suffered over the past year.

What is it? 🤔 Elliott managed over $51 billion in assets as of the end of last year and has been one of the more prolific activist investors, including campaigns at big names like AT&T, Twitter, and most recently Pinterest.

✈️ THE TAKEAWAY

The curious case… 🧐 PayPal was first - Pinterest could be next. In short, what might be happening here is that Elliott Management could be pushing with positions in both Pinterest and PayPal as a way to get both teams to the table and start to get a deal talk together. Remember that late last year there were rumors that PayPal was thinking of buying Pinterest. Back then, I said that it makes quite some sense as it would further solidify their Super App ambitions. Maybe that wasn’t such a bad idea after all?

Coinbase + Blackrock = 🚀

The news 🗞 After all the issues and challenges, Coinbase COIN 8.00%↑ has delivered some of the biggest crypto news this year so far. The crypto exchange has partnered with Blackrock BLK 0.57%↑ to make crypto directly available to institutional investors.

More on this 👉 With $10 trillion of assets under management, BlackRock is the largest asset manager in the world.

Via the partnership, institutional clients of Aladdin (BlackRock's investment management platform) now have direct access to crypto trading, custody, and prime brokerage through integration with Coinbase Prime.

✈️ THE TAKEAWAY

This is HUGE🔥 Partnering with asset managers is one thing - partnering with the largest asset manager in the world is a completely different game. The thing is that Aladdin (Asset, Liability and Debt and Derivative Investment Network) is probably the most important financial software you have never heard of. As of the second quarter of 2022, Aladdin has more than 200 institutional users, including insurers, pensions, corporations, asset managers, banks, and official institutions that net over $21 trillion of assets under management. No wonder Coinbase stock opened at +35% following the news the other day. This is huge, and can change the institutional crypto game forever.

🔎 What else I’m watching

More neobanking M&As 💸 Just last week I wrote about the beginning of neobanking consolidation when French Qonto scooped German Penta. Now, another German challenger is being acquired. Denmark-based Ageras Group has announced taking over the Germany-based FinTech Kontist. The two companies did not provide any information about the purchase price. The Ageras Group has been active in the German market since 2017. The company provides a marketplace for accounting services and has been offering invoicing software for the self-employed with Zervant since 2021. Ageras is pursuing a buy-and-build strategy to build a finance ecosystem around accounting, banking, and admin features for small businesses in Europe and the US. Kontist is a bank for the self-employed and offers banking, accounting, and tax solutions. The Kontist brand will be retained and the current management will also remain on board. More to come 🚀
Revenue-based financing is struggling? 🤔 A couple of months ago Clearco, the Canadian HQ’d and best-funded revenue-based financing startup active in Europe, had made 10% of its staff in its Dublin office redundant. Now that number has grown to 25% of its global staff — 125 employees — its cofounders announced on LinkedIn. It joins revenue-based financing rival Uncapped, which laid off an equal proportion of its employees in April.

💸 Following the Money

Of its recently announced $7B fund, Lightspeed Venture Partners’ commitment to seed through Series B funding rounds has more than doubled from previous years to $2B. This yet again highlights the trend of firms devoting more investment to early-stage startups.
Chiliz, the owner of blockchain-based fan rewards platform Socios.com, has invested $100M in FC Barcelona's NFTs and metaverse efforts.
Paystand, a US-based blockchain-enabled B2B payments company, has acquired Yaydoo, a Mexico-based accounts payable startup, to improve its business-to-business payment capabilities.

👋 That’s it for today! Thank you for reading and have a relaxing Sunday! And if you enjoyed this newsletter, invite your friends and colleagues to sign up:

Linas's Newsletter

Discussion about this post