Is Revolut really worth $10bn?

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Chris Skinner, who is a respected expert on fintech, has written a very interesting blog about Revolut’s place in the neobank revolution. As he points out, some fintech unicorns are already facing pressure. WeWork is one of the latest to “get caught in the pre-IPO crossfire” as he says. And he adds, “In case you’re not aware, their CEO and founder has gone and now they’re scrapping their plans for a share sale after seeing their estimated post-IPO valuation decimated.”

As those of us familiar with the fintech world know, unicorns are not so mythical there; there are many multi-billion dollar valuations, although not all have survived. Skinner focuses on Revolut in his blog, as it has grabbed the headlines recently with a $1.5bn funding round aimed at enabling the UK-based neobank to move into the US market. However, this gives the company a valuation of around $10bn. This would make it Europe’s most valuable unicorn.

However, it has not escaped controversy, such as rumours of connections to the Kremlin (who isn’t accused of this these days) and a toxic work culture. However, that is beside the point. What concerns Skinner is the massive valuation for a four-year-old company. He points out why: “In 2018, Revolut made a net loss of £32.8 million ($40 million) on revenues of £58.2 million ($70 million), doubling the level of losses it made in 2017. Furthermore, the cost of sales jumped 247% on card scheme charges and user acquisition.”

So the big question is; what is its real value? Skinner points out that this question was raised by Vinay Jayaram on LinkedIn, who wanted to know what Revolut’s numbers actually meant. Jayaram said, “They claim to have 8M customers. Let’s assume *all* of them are active. If they are “valued” at $10Bn that’s a per customer lifetime value of $1,250 or £1,000.”

He added, “Their premium fee is £6/month or £72/year. That’s 14 years to break even, assuming that’s the only revenue source (it isn’t).” The upshot of this is “At a P/E of 20 (= 2x JPM) they’d have to be making $500M of net income to be worth $10Bn. They made £58M of revenue (a great feat). Revenue is not net income.”

Basically, the $10bn valuation is “astonishing” in Jayaram’s view, but as he says, “the US interest rate cuts sure came at a great time for Revolut.”

Skinner adds, “for those young firms saying that profit is not part of their core metrics, you’ll need to get real one of these days.”

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