Adapting to uncertainty

There are a lot of mixed signals in the economy: Companies are laying off workers and some economists are warning of a recession, yet Friday’s jobs data showed unemployment at a half-century low. Consumer confidence is falling, but spending has proven somewhat resilient.

All that uncertainty is hanging over fintech firms, whose fortunes are tied to how willing customers are to spend and borrow. Most have seen their share price fall significantly since the start of the year.

In response, industry leaders are cutting costs. Companies known for chasing scale are instead advertising to Wall Street investors how they plan to streamline and focus on core businesses.

• Block reported earnings that topped Wall Street expectations on a per share basis on Thursday. But with revenue growth slowing, the firm’s leadership detailed plans to cut planned investments by $250 million this year, including slowing hiring and marketing.
• “We are continuing to invest, given the vast market opportunities we see, but we also recognize that the environment has changed, and we're prepared to adapt to uncertainty and maintain discipline by pulling back,” said CFO Amrita Ahuja.
• Similarly, PayPal, said it is cutting $900 million in spending this year, a total that includes a round of May layoffs. Those cuts could add up to $1.3 billion in savings for the full year in 2023.
• "The backdrop continues to be complex," said interim CFO Gabrielle Rabinovitch, "and we're taking an appropriately prudent approach to managing our business."
• There are other complicating factors. Activist investor Elliott Management is pushing PayPal to focus on “operational improvements,” PayPal CEO Dan Schulman said on the earnings call. Block bet big on bitcoin, only for revenue tied to it falling 34% last quarter. (Excluding bitcoin, revenue at Block was actually up 34% during the same period.)
• Robinhood and Shopify have pulled back even further. Over the past two weeks, the companies have laid off 23% and 10% of employees, respectively. Leaders at both companies admitted to making bad bets that they would keep growing at the same rate as during the pandemic.

Belt-tightening is not limited to fintech firms. With costs rising from inflation, companies across industries are eyeing cuts, a recent Gartner survey found. General uncertainty is continuing to be a drag on private investment markets for fintech as well.

• Fintech startups saw $24 billion in second-quarter investments. That marked an 18% decrease from the same period last year, according to a report from PitchBook.
• The cuts are notable for firms like Block and PayPal, which saw huge demand during the pandemic. Their share prices surged and the companies expanded.

The stock market has become particularly turbulent for fintech firms, which carried high valuations for much of the pandemic. The F-Prime Fintech Index is down about 75% year-to-date, compared to a 20% drop for the broader Nasdaq index. PayPal, however, closed the week with its share price up 9.5% as investors responded positively to the planned cuts.

"PayPal and SoFi probably weren’t worth what they were trading at when everyone was riding high in late 2020 and early 2021, but they are solid businesses with resilient business models," Alex Johnson, author of the Fintech Takes newsletter, told Protocol. Others, like Robinhood, saw their share value fall because of clearer issues in business fundamentals, Johnson added. Coinbase will report earnings on Tuesday, adding another data point to where the fintech market is at. There mixed signals also abound: The company is facing down a legal battle with the SEC that could fundamentally alter its business. The company also saw its shares jump 16% Thursday after announcing it would provide crypto services to BlackRock.

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On the money

On Protocol: How the fate of nine small tokens could shift regulation for the entire crypto industry.

Voyager details plan to give customers some of its cash. After getting approval from bankruptcy court, Voyager said customers can request a cash withdrawal on Aug. 11. Voyager froze withdrawals early last month before filing for bankruptcy, and the status of customers’ crypto held by the firm is still not settled.

Lawmakers are questioning diversity within crypto firms. A coalition of U.S. House lawmakers led by Financial Services Committee Chairwoman Maxine Waters have sent a survey to 20 crypto firms inquiring about their diversity, equity and inclusion efforts.

Overheard

New payment types like "buy now, pay later" and embedded finance may well make things easier for users, but "these changes also create more opportunities for companies to aggregate and monetize consumer financial data, and for large players to dominate consumers’ financial and commercial lives." So warns a new report from the Consumer Financial Protection Bureau, which lays out how the regulator plans to bring new rules to the space.

Coming up

The Insurtech Latam Forum is taking place all week in São Paulo. The event features 60 speakers from around the globe.

The Blockchain Futurist Conference will take place in Toronto on Tuesday and Wednesday August 9-10. Speakers include Ethereum co-founders Vitalik Buterin and Anthony Di Iorio, Ethan Buchman of Cosmos and Informal Systems and Arthur Camara of Dapper Labs.

Coinbase has its earnings call on Tuesday. According to Zacks Investment Research, the consensus EPS forecast is $-3.04, whereas it was $6.42 the same quarter last year.

Marqeta has its earnings call on Wednesday. The consensus EPS forecast for MQ is $-0.11 this quarter, according to Zacks Investment Research. It was $-0.29 the same quarter last year.

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