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Too big to fail was the label assigned to legacy banks back in the financial crisis. Might too big to succeed be the epithet for the racy start-ups that hope to usurp them?
The frontrunner in Europe is the UK’s Revolut run by co-founder Nik Storonsky. The group’s delayed financial accounts for 2022 finally arrived on Friday. They showed spectacular growth — along with growing pains.
Revolut is positioning itself as a one-stop financial shop unconstrained by product or geographical boundaries. This bold promise captivated private investors who bought in at a price tag of $33bn back in 2021. Investors have since been marking down their stakes as market interest rates have risen. But regulators may be a bigger immediate hurdle before Revolut’s long-term ambitions.
Revenues were $1.1bn in 2022 or 45 per cent higher than the previous year. These are expected to hit $2bn this year, when net profit margins are forecast to reach double digits. Costs also rose rapidly with headcount doubling to 6,000 last year. After a slowing of the pace, some 8,000 are employed today.
Those are the sort of metrics investors adore. But they are also the kind that test the nerves of regulators mulling Revolut’s longstanding application for a UK banking licence. Another factor was the qualification of the 2021 accounts after auditors were unable to fully verify some of the revenues. In the latest accounts, the auditors said previous issues around Revolut’s internal controls had been resolved.
Some investors now ascribe a value closer to $20bn for the group. That looks closer to the mark. Assuming Revolut’s growth moderates in 2024, and a low double digit net profit margin, it might earn around $300mn. A 50 times multiple, the same as Adyen and higher than Wise, implies a valuation of $15bn.
Revolut has yet to disrupt the market as planned but its broader ambitions could boost its valuation over its pure payment peers.
