Q1 Numbers and the Insurtech Divergence
How to read the fintech markets in Q1 2024
Hello and welcome back to Fintech Prime Time, our monthly delivery of fintech industry data and analysis.
We hope you enjoyed picking through our findings in the 2024 State of Fintech Report. If you missed it, you can find all the relevant numbers and analysis over on the F-Prime Fintech Index.
This month: it’s time to dig into public fintech companies’ performance in the first quarter of 2024.
Fintech in Q1: Flat Performance Hides Mixed Results, with Insurtech Diverging
By Abdul Abdirahman and Sarah Lamont
While the F-Prime Fintech Index ended Q1 lower than it started, it’s worth noting that it also hit its highest point since the bull run of late 2020-21, reaching a total market cap of $640B.
What’s Up With Insurtech?
In the F-Prime Fintech Index’s year-to-date numbers, you can see that the valuations of most companies in a vertical tend to move as one. All wealth and asset management companies are up, payments companies’ performance is mostly flat, lending companies have declined.
However, we’re seeing divergence in the performance of insurtech companies — some, like Hippo Insurance, are up more than 100 percent this year, while Clover is down more than 17 percent. In general, insurtech stocks have rebounded strongly over the past few months aided by favorable macro conditions and market sentiment. Insurtechs have been focused on improving fundamentals, moderating cash burn, and working towards profitability — all while maintaining growth.
Insurance companies often respond to macro factors in similar ways. For example, an environment of rapidly rising interest rates generally hurts insurance companies more than other verticals. Rising rates decrease the value of long-duration assets in an insurer’s portfolio, while rapid rate swings can lead to badly mismatched cash flows between assets and liabilities, exposing insurers to losses from pressured asset sales.
However, over the last year individual company performance has outweighed macro drivers:
Hippo grew policies in force by 40 percent and revenues by 80 percent, while slashing EBITDA loss by more than 50 percent over the last year. These strong year-end results propelled the stock to rebound by over 100 percent (including a 35 percent single-day gain on the announcement of their year-end results).
EverQuote reported revenue/adjusted EBITDA above the high-end of management’s outlook, and guided Q1 well ahead of the Street. Management also anticipates the company will incur a final loss in 2025 before achieving profitability. The fact that EverQuote has zero debt on its balance sheet makes this target more viable.
Oscar, like EverQuote, saw a 47 percent increase in premiums earned (to $5.7 billion) and a significant step towards profitability as the company improved adjusted EBITDA by $417M (from a loss of $462M to a loss of $45M). Management has forecasted positive adjusted EBITDA of $125M to $175M for 2024.
Capital deployment to the insurtech vertical has been slowing for some time — last year, investment in private insurtech startups fell to their lowest level since 2017. However, we see a lot of opportunity for increased AI adoption to drive efficiencies in this traditionally labor-intensive vertical. In our State of Fintech report we found that predictive AI (applications that can support use cases like “next best action,” which have been widely used for years) appear to be table stakes in insurtech: Lemonade and EverQuote are using predictive AI to spot patterns and provide traceability for underwriting decisions, while Clover Health is assisting doctors to analyze past medical records.
The Payments $1T Club
While it hasn’t (yet) hit the public markets, we should note Stripe’s huge news: the payments company processed $1T in 2023. The milestone represents 25 percent year-on-year volume growth, and means that the output of businesses running on Stripe now sums to roughly one percent of global GDP. Stripe crosses the threshold just a month after Adyen and three years after PayPal, which passed the milestone in 2021 and now processes $1.53T annually. Together, these three are the only payment companies in the F-Prime Fintech Index with more than $1T TPV.
Q1 Valuation Multiples
Overall, fintech multiples stayed flat at 4.8x in Q1, 2024. If we zoom in, however, the picture is more mixed.
By Growth Rate:
Fintech companies are still trading below historical mean. While investors are rewarding capital-efficient growth, the premium remains small with fast growers (more than 40 percent year-on-year revenue growth) trading at 4.7x EV/revenue and slow growers (less than 20 percent year-on-year revenue growth) trading at 3.7x.
By Vertical:
Multiples in the banking, insurtech, real estate, and wealth and asset management verticals all rose in Q1. Gains in the latter (up from 7.3x to 9.6x) were driven by Coinbase, which jumped from 15x to 20.5x, and Robinhood, where strong revenue growth drove a rise from 2.7x to 5.6x.
Affirm’s declining multiple dragged the lending vertical down from 8.3x to 6.6x, while B2B SaaS and payments stayed flat from Q4 to Q1.
