FinTech: There’s A Bubble In Fintech, Says Billionaire J C Flowers
Flowers was speaking on a CNBC interview.
Is there a bubble forming in fintech? Billionaire investor and CEO of investment firm J C Flowers & Co seems to think so, pointing to soaring valuations of financial technology companies. “I think there are a lot of indicators that there is a bubble” in fintech, Flowers told CNBC’s Annette Weisbach in an interview. (CNBC)
Valuations or fluff?
“If you look at traditional — or even not so traditional — valuation metrics, many companies trade at 10 times what a normal company would trade at for that kind of thing,” Flowers said.
“There are also many examples of companies which really aren’t very good trading at high valuations,” he added, without giving out any names. “It’s a mixed bag. There’s a lot of fluff out there.”
Investors have bid up fintechs based on a surge in digital transactions during the pandemic and a migration to branchless banking amidst virus lockdowns. Venture capitalists and private equity players have been investing in fintechs at higher and higher valuations, paying top dollar for growth-oriented fintechs that may still be years from clocking their first profit.
Fintechs now command comparable or higher valuations than many legacy banks.
While Stripe, a private fintech, was last valued at a humongous $95 billion, listed Square (NYSE: SQ) is trading at a market capitalisation of $107 billion, and PayPal (NASDAQ: PYPL) at $242 billion.
In comparison, the market valuation of Wells Fargo (NYSE: WFC) is $199 billion, and that of Citigroup (NYSE: C) about $133 billion.
However, Flowers did say that there remained some investible opportunities within fintech, particularly companies that were in the business of processing payments rather than in lending.
Also, it’s better to invest in profitable fintechs rather than losing ones.
“Companies that make money, at least on a unit basis … are a lot more interesting than ones that say they’re going to make money but actually lose money,” Flowers said.
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