GreenSky IPO: Here Comes The Second Wave Of Fintech IPOs
May 23, 2018 | Blog

GreenSky IPO: Here Comes The Second Wave Of Fintech IPOs

Summary: GreenSky is scheduled to go public this week at a price ranging from $21 to $23 per share, giving it a valuation of up to $4.4 billion. The Atlanta, GA based fintech firm’s IPO could raise up to $901 million, the largest fintech stock offering to date. Shares of publicly traded fintech companies have been decidedly mixed since their Wall Street debuts. However, GreenSky’s IPO could provide much needed momentum to a fairly robust group of fintech unicorns waiting to go public.

A Litmus Test For Upcoming Fintech IPOs: Investors might have good reason to be wary of fintech stocks. LendingClub, which raised $900 million in 2014, the largest tech IPO of that year, has suffered a series of scandals and mismanagement. Today, LendingClub trades below $4 per share, compared to $25 four years ago. OnDeck’s stock has not fared well, either. However, fintech remains a potentially promising area for investment. Over 55 percent of investors selected fintech as one of the top three areas of long-term investment potential, according to SharesPost Investment Sentiment Survey for 2018. Cardlytics, which went public in February, has seen its stock jump nearly 20 percent. EVO Payments, a global merchant acquirer also based in Atlanta, is seeking to raise $210 million at a $1.2 billion valuation this week. Should GreenSky’s IPO perform well, unicorns like SoFi, Prosper, and CreditKarma will likely take notice.

Private Tech Valuations Could Continue To Rise In Public Markets: Recent IPO activity of VC-backed tech companies has been encouraging. Cybersecurity firm Zscaler upped its IPO at $16 per share after an initial range of $13 to $15 per share. Investors effectively valued Zscaler’s IPO at 99 percent above its most recent private funding round. Dropbox and Spotify have also enjoyed warm receptions on Wall Street. GreenSky’s proposed $4.4 billion valuation in the public markets (assuming the high-end of its IPO pricing range) would essentially represent a flat-round versus the most recent Jan 2018 funding round but compare favorably to its $3.6 billion private valuation in September 2016.

Because tech IPOs and rising valuations often reflect investor sentiment, stock offerings from GreenSky and others would be more good news for the more than 200 unicorns waiting to go public. We could possibly see another wave of IPOs, as well as possible significant value creation for institutional and individual investors, including many employee shareholders.

Including GreenSky, we’ve tracked 28 VC-backed tech IPOs over the past 24 months in the chart below. According to our data, 19 companies enjoyed IPOs that exceeded recent private valuations, while nine companies suffered down-round IPOs. Year-to-date, we have seen just one down-round IPO, Dropbox. It doesn’t get much better than this for proven companies seeking go to public.

Source: Google Finance; SharesPost Research; Spotify IPO valuation assumed at $28.5 billion; Pivotal IPO valuation assumed at $4.0 billion; Chart excludes Stitch Fix IPO which implied a 595 percent estimated premium; GreenSky IPO valuation assumed at $4.4 billion

Background: Founded in 2006, GreenSky is a consumer lending fintech company. It enables customers to access loans to finance purchases at the point-of-sale across GreenSky’s merchant network. Banks provide the loans, which primarily focus on home improvement, healthcare and solar purchases. (Home Depot is one of GreenSky’s largest retail partners.) GreenSky’s technology platform acts as a bridge between customers who enjoy strong credit histories and want to make large purchases and banks willing to offer them loans with more attractive terms. The merchants that partner with GreenSky benefit from higher sales volume.

From a valuation standpoint, GreenSky is a profitable company with $350 million in cash and $488 million in total liabilities as of the end of 2017. Last year, GreenSky earned a profit of $139 million on revenues of $326 million. By comparison, GreenSky generated net income of $124 million on revenues of $264 million in 2016. Assuming a high-teens to low-20s revenue growth rate, at the high-end of GreenSky’s IPO pricing range, we are looking at an enterprise value of about $4.4 billion and an EV/sales ratio of 11.0x.

The Upside Scenario

Large and growing network of banks: GreenSky has cultivated a growing list of sizable regional banks to finance loans, including SunTrust Bank, Regions Bank, Fifth Third Bank and Synovus Bank. Overall, the banks have financed $12 billion in transactions to 1.7 million consumers.

Significant growth in loan originations: GreenSky’s underlying business drivers include its large number of merchants and the sizeable transaction volume per merchant, as well as number of consumers and loan volume per consumer. While the number of merchants and consumers have continued to rise, the loan volume per merchant and loan volume per consumer have recently declined.

Low-risk, asset-light attractive business model: GreenSky does not make any loans. The company merely connects consumers, banks, and lenders. Therefore, any consumer default won’t directly impact GreenSky as the merchants; banks assume all of the risk. Heavier regulation of the fintech sector also won’t directly the company.

The Downside Risk:

Rising default rates could hurt GreenSky’s prospects: We believe public equity investors would hamper GreenSky’s growth prospects should the economy cool off. We are well into the late stages of a long bull market that has lasted nine years. With each passing day, a macroeconomic slowdown grows more likely. Rising defaults among borrowers and increased competition have kneecapped the public lending market in recent years.

Competitors include established players: GreenSky’s main competitors are large financial institutions that originate loans and manage a soup-to-nuts financial relationship with consumers. Furthermore, credit card companies or small business lenders could encroach on GreenSky’s turf by offering comparable products at competitive prices.

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Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered as a long-term investment. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid, and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks. You should complete your own independent due diligence regarding the investment, including obtaining additional company information, opinions, financial projections, and legal or other investment advice.

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Alejandro Ortiz

Alejandro Ortiz

Alejandro is a Research Analyst, Private Investment Research for SharesPost Research LLC. Prior to joining SharesPost, he was a Valuation Analyst at Duff & Phelps with a focus on TMT industries.
Please Read These Important Legal Notices and Disclosures

CONFLICTS: This report is being published by SharesPost Research LLC and distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation, and SP Investments Management LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost Inc. SP Investments Management is the investment manager of the SharesPost 100 Fund, a registered investment company, and other funds.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction. This report does not constitute an offer to provide investment advice or services. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or advisability of a particular investment or transaction, (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

Information regarding companies in the SharesPost 100 List available on the website has been collected from or generated from publicly available sources. The availability of company information does not indicate that these companies have endorsed, supported, or otherwise participated with SharesPost. Company “thesis” is the opinion of SharesPost and is not a recommendation to buy, sell, or hold any security of such company.

Investors should be aware that, at any given point in time, the SharesPost 100 Fund (the “Fund”) may or may not have an ownership interest in any of the issuers discussed in the report. Accordingly, investors should not rely on the content of this report when deciding whether to buy, hold, or sell interests in the Fund. Instead, investors are encouraged to do their own independent research. Before investing in the Fund, investors are cautioned to carefully consider the investment objectives, risks, charges, and expenses before investing. For a prospectus containing more information about the Fund, please visit www.sharespost100fund.com. Read the prospectus carefully before investing.

ANALYST CERTIFICATION: The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about any and all of the subject securities or issuers and that no part of such analyst compensation was, is, or will be, directly or indirectly related to the specific views contained in this report.

Analyst compensation is based upon various factors, including the overall performance of SharesPost Inc. and its subsidiaries and the performance and productivity of such analyst, including (1) feedback from clients of the SharesPost Financial Corporation and other stakeholders in our ecosystem, (2) the quality of such analyst’s research, and (3) the analyst’s contribution to the growth and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost Inc., including brokerage sales.

DISCLAIMER: This report does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.

Any securities offered are offered by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered as a long-term investment. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid, and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks. You should complete your own independent due diligence regarding the investment, including obtaining additional company information, opinions, financial projections, and legal or other investment advice.

Investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

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Copyright © SharesPost, Inc. 2019. All rights reserved.