For the past week or so, the spotlight has squarely been on two large consumer-focused financial technology or FinTech firms. Robinhood Markets, which pioneered commission-free trading of stocks, options, cryptocurrencies and fractional shares, listed its shares on Nasdaq, raising US$2 billion ($2.7 billion). The listing was a disaster as investment banks failed to keep the stock from falling well below the IPO price. In the four trading days since, Robinhood stock has more than doubled.

Days after Robinhood’s IPO, US payments giant Square, which operates the ubiquitous Cash App, made its biggest acquisition ever buying Australian-listed “Buy Now Pay Later” (BNPL) firm Afterpay for a whopping US$29 billion in an all-stock transaction. Even for the overhyped FinTech space, that’s a hefty price tag. Square is paying 25 times Afterpay’s estimated sales for the current fiscal year ending next June — a multiple until recently reserved for a handful for ultra-high-growth software firms.  

Listed firms overpaying to make large transformational acquisitions often see their stocks clobbered on the news of the deal. Yet, for Square’s investors, somehow it all made sense. The operator of Cash App itself trades at stratospheric multiples and was using its own overvalued shares as currency to buy a company with strong revenue growth. Though Square’s revenues grew 102% last year compared to AfterPay 78% sales growth in its last fiscal year and Square is projected to post 100% revenue growth this year, it is mostly on the back of the bitcoin boom. Excluding crypto trading, Square's revenue only grew 17% in 2020, and analysts expect its total revenue (excluding cryptos) to grow just 13% in 2022. Afterpay sales are expected to grow 60% this year and over 50% next year. By leveraging each other’s growing client base, the combined firm expects to supercharge its growth.

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