A reduction of $15bn in the value of Revolut, the would-be “Amazon of banking”, sounds enormous until you remember the starting point.
Back in 2021, the last time the privately owned company’s valuation created a stir, the valuation was $33bn – in that case supported by a hard transaction in which SoftBank and Tiger Global Management, two established backers, led a $800m round of fresh investment.
Since the entire tech universe, or most of it, has suffered a hefty devaluation since 2021, it’s not surprising that Schroders would reach for the scissors when estimating a fair value for the comparatively modest stake in Revolut that it holds in one of its investment trusts. When there are no recent transactions to use as a yardstick, valuing unlisted companies involves making judgments.
In fact, one can easily look at the Revolut valuation conundrum through the other end of the telescope and ask: isn’t $18bn still a bit punchy in today’s colder climate in tech-land?
One of the absurdities from 2021 – that Revolut was worth more than NatWest – has reversed: the rehabilitated high street lender now has a market capitalisation of £26bn versus the eight-year-old firm’s £14.2bn (in sterling terms). But one can still scan the list of FTSE 100 financial stocks and find startling comparisons.
Try Legal & General, the solid and successful asset manager and insurer, with a market capitalisation of £15bn. Can Revolut, which made a profit of £26m in 2021, really be worth almost as much as a FTSE 100 company that recently reported a 12% increase in after-tax profit to £2.3bn?
Revolut is young, growing and increasingly global (it’s just about to launch in Brazil, for instance), goes the bullish argument. The company is not being valued on today’s numbers, but on projections of success over time – including, it is hoped, in the UK (home of 6.5 million of the current 27 milllion customers) if the long-sought banking licence ever arrives. The fintech revolution and the shift to digital services, it is argued, is only in its infancy.
OK, nobody can question Revolut’s rapid pace of expansion: revenues rose a third to £850m, the company has already said of its 2022 performance. And, unlike some of the tech goliaths that overhired during the pandemic, the company hasn’t been shedding staff.
Come on, though – perspective is still needed: as things stand today, L&G makes 2.7 times more in bottom-line profit than Revolut generates in top-line revenue. Even allowing for a fintech premium, that’s one hell of a difference between two financial companies of supposedly equal market value.
The discrepancy makes little practical difference to Revolut if it has all the funding it needs for the foreseeable future, which is the company’s position. Indeed, one should probably congratulate co-founder Nikolay Storonsky for his brilliant timing in securing the $800m two years ago.
The point, though, is that the company was valued at $5.5m in its previous funding round in 2020, so a jump to Schroder’s $18bn would still be impressive if it weren’t for the spike to $33bn in between. And $18bn may still be too much, too soon.