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Checkout.com: Victorian values shrink, leaving investors unamused

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Checkout.com has always enjoyed doing things differently to other payments companies. In 2019, the London-based fintech sealed its first fundraising with a handshake “between gentlemen”. That style of doing business was more common among top-hatted Victorians than it is for start-up bros in Patagonia vests.

Both constituencies would be familiar with hyped-up companies that disappoint investors. Privately held Checkout.com has slashed its internal valuation to about $11bn. That would seem a sensible response to the Great Rotation to value stocks, as the company and its investors face the question of whether a notional worth of $40bn makes sense.

The figure reflects a $1bn cash raise in January and a tripling in value. The essential caveat is that private funding rounds often produce very unreliable total valuations. Sales of slim slivers of equity generate misleading capitalisations even in a liquid public market.

Moreover, Checkout.com’s most recently published annual results for its UK entity showed an adjusted ebitda loss of $12mn in 2020. Listed rival Adyen has a market capitalisation of €44.6bn, with ebitda of €630mn for 2021.

Inflation has crimped discretionary spending. Investors want to see a path to short-term profitability. Other highly valued private fintechs such as Sweden’s Klarna and Stripe have cut workforces. Shares in listed counterparts have tanked. PayPal is down 60 per cent over the past year. US buy now, pay later provider Affirm has suffered an almost 90 per cent fall over the same period.

Checkout.com’s particular woes include links to the crypto industry. FTX, one of the world’s largest crypto exchanges, is now a smouldering ruin. Another, Binance, is reportedly facing a justice department probe. Traders are running for the exits. Falling transaction volumes will hit revenues.

There are two lessons for fintech investors. The first is that it is foolish to assume that a surge in business during a pandemic will persist afterwards. The other is that private valuations are worth little more than the sums companies spend on press releases announcing them.

The story has been amended to clarify the difference between internal and notional investor-determined valuations.

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