Why are some fintech stocks down by over 80% in 2022?

A cohort of venture backed Fintech companies IPO'd during the pandemic, and soared in valuation. But over 2022, valuations have plunged, and business has declined.

It has been a bad year for most of the stock market. But why has it been so much worse for fintech?

While the S&P 500 is down 20.6% year-to-date, fintech stocks have declined far more.

These figures show the % change in stock price for notable VC-backed fintech companies, compared to the % change for the S&P 500, year to date in 2022.

These companies IPO'd during the pandemic. But they have all declined sharply since. Many are in fact trading at valuations far below their pre-IPO venture rounds.

COIN

▼ -81.4% YTD

NU

▼ -51.6% YTD

SOFI

▼ -67.9% YTD

HOOD

▼ -52.3% YTD

AFRM

▼ -86.8% YTD

UPST

▼ -88.5% YTD

LMND

▼ -55.1% YTD

DAVE

▼ -96.5% YTD

TOST

▼ -46.0% YTD

BLND

▼ -74.4% YTD

MQ

▼ -64.7% YTD

ML

▼ -76.0% YTD

Revenues are growing, although at a slower pace than before.

Fintech companies aim to disrupt traditional finance services. Fintech companies make money in a variety of ways: fees from trading activity, interest from loans, or insurance premiums.

These figures show quarterly revenues, in millions of dollars.

COIN

▼ -27.0% quarterly

NU

▲ 126.3% quarterly

SOFI

▲ 17.0% quarterly

HOOD

▲ 13.5% quarterly

AFRM

▼ -0.7% quarterly

UPST

▼ -29.7% quarterly

LMND

▲ 48.0% quarterly

DAVE

▲ 24.0% quarterly

TOST

▲ 11.4% quarterly

BLND

▼ -15.5% quarterly

MQ

▲ 2.6% quarterly

ML

▲ 1.6% quarterly

Profitability remains a major concern across the sector.

Most fintechs have struggled to consistently deliver profits. Many investors are concerned that some of these companies won't achieve profitability before running out of money.

These figures represent EBIT margin, a measure of the company's profitability. Higher margins are better. And negative margins means that a company is unprofitable.

COIN

-72.8% margins

NU

0.5% margins

SOFI

-17.6% margins

HOOD

-48.2% margins

AFRM

-79.5% margins

UPST

-34.3% margins

LMND

-120.4% margins

DAVE

-66.7% margins

TOST

-11.2% margins

BLND

-119.3% margins

MQ

-31.1% margins

ML

-27.1% margins

The appetite for risky stocks is dropping.

Fintechs are growth stocks. They have the potential for high investment returns, but their business models are risky and unproven.

As the economy enters a recession, these types of risky businesses become less attractive for investors. There could be more trouble ahead for Fintech.