Recent Strong Retail Trading Activity Positive
AnalytixInsight [TSXV:ALY; OTC: ATIXF] Poised to Benefit from Fintech Trends
- Although there are many prominent Fintech companies like Robinhood, Square, and PayPal, technology has advanced finance for 150 years, starting with Western Union to accelerate money transfers.
- New public listings are likely to keep investors focused on Fintech, including recent transactions in Canada.
- That said, Fintech challenges are evolving — retail investors are becoming more active.
- Perhaps, the most prominent and recent challenge has been the Reddit WallStreetBets / Robinhood saga.
- We were struck by a record number of retail investors downloading and using Robinhood, despite their anger with that platform.
- Additionally, U.S. Congress and SEC reactions to the Reddit WallStreetBets / Robinhood saga illustrates the need for platforms to have better guard rails for non-professional investors.
- Sophic Capital client AnalytixInsight [OTC:ATIXF, TSXV:ALY], a pure play artificial intelligence/machine learning (“AI/ML”) firm providing financial content on 50,000 global stocks to financial institutions and websites, is poised to benefit from these trends.
- AnalytixInsight’s MarketWall unit (49% owned by AnalytixInsight) could offer near term catalysts for investors, driven by trends we highlight in this report.
- MarketWall has recently begun selling its trading platform application as a white label product, enabling established financial institutions to rapidly deploy retail trading platforms as many traditional banks and brokers are forced to play catch up to the new retail trading trend.
Fintech is an Expanding 150-Year-Old Industry
Some investors may be surprised to know that Fintech is a 150-year-old sector. Many consider Western Union the first Fintech company by allowing customers to transfer money between New York, Chicago, and Boston in 1871. The telephone then allowed analog financial communications between customers and banks and brokers. Digital Fintech evolved to the NASDAQ which became the world’s first digital exchange, and ATMs simplified depositor access to their banking needs.
Today, Fintech brings to mind PayPal, Square, Stripe, Affirm, Alipay, Robinhood, Coinbase, Apple Pay, Bitcoin, and many newer, rapidly growing companies and technologies. LendingClub continues to provide peer-to-peer lending; apps like Xoom allow people to transfer funds overseas from smartphones rather than through brick-and-mortar bank branches; and cryptocurrencies like Bitcoin SV [BSV] hold the promise of speedy peer-to-peer cash transfers for a fraction of a penny. As the Fintech universe continues to expand, capital markets activity continues to support this fast-evolving sector.
Multiple High-Profile Public Listings Likely to Keep Investors Focused on Fintech
One of the most talked about Fintech companies going public is cryptocurrency exchange Coinbase, which is seeking a direct NASDAQ listing. According to Coinbase’s S-1 SEC form, revenue more than doubled in 2020 to US$1.28 billion from US$533.7 million in 2019. Coinbase claims 43 million verified users, and 2.8 million of them transact monthly (Crypto.com estimates that as of January 2021 there were 106 million crypto users throughout the world). Growing demand for cryptocurrencies could see Coinbase go public at a higher initial valuation than any other U.S. tech company since Facebook.
Over in Sweden, payments firm Klarna could choose a direct listing without raising money by selling new shares, following recent strong demand for a private financing. On the back of a $1 billion private funding round that was four times oversubscribed and following a US$650 million round in September 2020, rumours abound of an IPO or SPAC-merger at a US$31 billion valuation.
Closer to Home, Canadian Fintech Getting Attention, Prominence – and Money!
Although still privately held, Stripe named Mark Carney, the former head of both the Bank of England and the Bank of Canada, to its board of directors. The Company plans to continue its international expansion and wants to leverage Mr. Carney’s extensive experience of global financial systems and governance. Stripe raised more than US$600 million in April 2020, valuing the firm at US$36 billion. The company then raised another US$600 million in March 2021 at a US$95 billion valuation.
Starting with Canadian start-ups, Elevate and Moneris launched Canada’s first ecommerce accelerator. Called “eCommerce North”, the program has the goal of helping 50 Canadian ecommerce start-ups scale over the next 3 years. As payments and eCommerce often go hand-in-hand, we would expect benefits of this development to spill into the adjacent Fintech space.
Moving to Canadian public companies, Mogo (TSX:MOGO, NASDAQ:MOGO) recently closed a US$54 million registered direct offering priced at-the-market. As former sell side equity analysts who authored equity research on Canadian Fintech stocks (including Mogo), we are encouraged by these developments, which signal renewed interest by investors in Canadian Fintech stocks; a very perceptible and meaningful evolution from as recently as the summer of 2020. This interest and support enable Fintech innovators to accelerate their growth plans. For example, Mogo’s financing followed the company’s strategic investment to acquire about 20% of Coinsquare, Canada’s leading digital asset trading platform. Mogo’s investment builds upon a multi-year relationship between the two companies where Coinsquare is the trading platform for MogoCrypto, a service Mogo launched in 2018 to allow its customers the means to trade Bitcoin. We believe this could be a very astute customer acquisition strategy given renewed interest in the crypto space.
Other recent Canadian Fintech developments include:
- Voyager Digital (CSE:VYGR), a crypto-asset broker that provides retail and institutional investors with a turnkey solution to trade crypto assets, announced a US$75 million private placement that was upsized to US$100 million. Use of proceeds are for general corporate purposes.
- Payfare, a global financial technology company we’ve met several times that is powering digital banking and instant or near-instant payment solutions for today’s gig workforce, filed a preliminary prospectus for its Initial Public Offering.
- Fraction Technologies, a digital platform that provides socially conscious financial solutions, raised C$289 million from a combination of equity and debt financing. The announcement effectively pulled Fraction Technologies out of stealth mode along with the launch of its initial product, the Fraction Appreciation Mortgage, a digital platform that allows people to unlock equity from their homes.
- Borrowell, a firm dedicated to helping people make great decisions about credit, raised C$25 million in equity to fund its acquisition of Refresh Financial, a company providing affordable access to credit for underserved Canadians.
- Ledn, a provider of financial services for digital assets holders, raised US$2.7 million to accelerate the growth of its Bitcoin-backed lending platform. The round brings total funding to C$4.7 million.
There is no doubt that Fintech has made our financial lives easier, and that capital markets activity continues. Clearly, the Fintech universe has significant growth potential, but challenges remain.
Fintech Challenges Are Evolving, As Retail Investors Become More Active Investors
Perhaps the most prominent and recent challenge has been the Reddit WallStreetBets / Robinhood saga. Retail investors ganged up on GameStop Corp short sellers, driving the share price from about US$17 at the start of 2021 to US$483. Robinhood Markets, the “free” trading app that’s popular with retail investors, was forced to halt GameStop share purchases (as well as other WallStreetBets targets like AMC and Nokia) and draw down bank credit lines to ensure it had enough cash to clear trades. GameStop’s stock collapsed, leaving many retail investors furious. Robinhood’s CEO was forced to testify before U.S. Congress and had to defend allegations of gamification of stock trading.
Perhaps the most amazing outcome of WallStreetBets wasn’t the SEC suspending trading in 15 stocks due to social media chatter and suspicious trading. It also wasn’t Robinhood restricting crypto trading due to “extraordinary market conditions”. To us, what was most interesting was that as furious as retail traders were with Robinhood, they kept downloading the app and trading stocks. In fact, the day Robinhood restricted trading was the biggest single download day on record for Robinhood, with 440,000 unique first-time installations in the U.S., according to app measurement company Sensor Tower. Robinhood then had its second largest number of downloads the next day. To us, this unprecedented surge of retail interest in investing is nothing short of mind boggling, and now that the genie is out of the bottle, perhaps it can never be put back in again. Secondly, aside from the public relations fiasco by Robinhood, the fact that the company was able to quickly draw down on credit lines and still continue operating suggests the company’s business model and retail investors’ desire to trade may be more robust than it appears on the surface.
Speaking about high-profile U.S. IPOs, regardless of the fallout from the Reddit WallStreetBets / Robinhood drama, Robinhood still plans to go public this year, according to Bloomberg. The firm was valued at about US$11 billion in a 2020 fundraising round, but the IPO valuation would likely be higher (possibly US$40 billion) based upon the US$3.4 billion injection to boost the broker’s clearing requirements.
Closer to Home, THIS Canadian Fintech Getting Attention and Prominence
Congress and SEC reactions to the Reddit WallStreetBets / Robinhood saga illustrate government’s need to intervene in lives of traders and the need for platforms to better safeguard retail investors/traders. We’re not going to argue whether Congressional and SEC involvement was ‘Big Brother’ activity to protect either retail investors or billionaire short funds; however, the Reddit WallStreetBets incident demonstrated the influence that social media has on retail trading. Sadly, it also demonstrated that while many retail traders are sophisticated, plenty of others are not.
Perhaps some novices, especially those who lost money on stocks like GameStop, could have benefitted from having financial research, or more context in order to make better informed decisions. Clearly, greed has played a role in the Reddit WallStreetBets / Robinhood drama, and no platform will ever be able to fully eliminate this basic human motivation. But these developments clearly demonstrate the need for platforms and products that better support retail investors. And although, Robinhood offers research to its Gold users, what about others across trading platforms who don’t have research? Fortunately, there is a solution.
Sophic Capital client AnalytixInsight [TSXV:ALY; OTC: ATIXF] is a pure play artificial intelligence/machine learning (“AI/ML”) firm providing financial content on 50,000 global stocks to financial institutions and websites. AnalytixInsight’s CapitalCube transforms raw financial data into simple to understand narrative reports that are valuable for both novice and experienced investors, comparing an issuer to its industry peers to measure its strengths and weaknesses. CapitalCube’s capabilities include natural language generation (translating data into narratives) and machine-created analysis reports, including earnings, dividends, and fundamental analysis. The platform is also capable of predictive analytics to forecast dividends, share buy-backs, and M&A actions.
AnalytixInsight’s MarketWall (a unit 49% owned by AnalytixInsight that we will examine in greater detail in a future publication) could offer a near term catalyst for investors, driven by trends highlighted in this report. MarketWall, has recently begun selling its trading platform application as a white label product, which enables established financial institutions to rapidly deploy retail trading platforms as many traditional banks and brokers are forced to play catch up to the new retail trading trend. This platform, branded as GEMINA, is especially useful to companies that do not have low-cost retail trading platforms. GEMINA already powers the “Investo” app for Intesa Sanpaolo, which is the stock quotation and trading component of Intesa’s banking app constellation – used by 6.5 million bank users. MarketWall’s pending online stock trading platform “InvestoPro” is also powered by GEMINA and upon approval from Italian regulators it will become a European online financial broker (more to come on this).
In our future pieces, we will further discuss the addition of ESG analytics attributes to the Company’s platform, which positions AnalytixInsight to emerge as one of the low-cost trading platforms to offer comprehensive fundamental analysis and scoring. We will also discuss potential upcoming developments at MarketWall, which should bode well for AnalytixInsight shareholders.
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