Worldline's $3.8B Wipeout: Wake-Up Call for EU Fintechs

Worldline’s $3.8B Wipeout: Wake-Up Call for EU Fintechs

Time Stamp: October 26, 2023 4:12 AM
Source Node: 2355556

The leading
French-based payment processor Worldline, has sent ripples of concern through
Europe’s fintech sector by cutting its sales outlook. The announcement led to a drop of more than 50% in the company’s stock, erasing €3.8 billion from its market
value and reducing it to around €2.7 billion. This comes amid increasing
skepticism from investors about the fintech industry’s sustainability,
especially in Europe.

At first
glance, Worldline’s report looks good. The company announced that revenue
reached €1.18 billion, translating to an organic growth of 4.8% compared to Q3
2022. The growth was primarily driven by its “Merchant Services”
segment, which saw an increase of nearly 8% to €868 million.

However,
Worldline also noted a macroeconomic deterioration in some of its core regions
and the termination of some important relationships. Worldline’s announcement
specifically highlighted challenges in the German market and rising risks of
fraud and cybercrime.

These
issues have forced the company to sever ties with some clients, impacting its
growth and profitability. Earlier this year, the German financial watchdog Bafin
had imposed severe restrictions on a Worldline subsidiary for failing to
prevent credit card fraud. As a result, the company expects to lose as much as
€130 million in revenue.

“The
scope of such online merchants could
represent a maximum of c. € 130 million in run rate 2023 revenues, of which c.€
30 million impacting H2 2023 and c. € 100 million mostly in H1 2024 impacting
comparison basis,” the company commented in the official press release.

As a result
of the release of negative news, Worldline’s shares on the Paris stock exchange
lost nearly 60% on Wednesday, falling to historically low levels. On Thursday
morning, they briefly deepened these lows, testing €9.01 per share.

Broader
Problems of the Fintech Sector in the EU

Just a day
before Worldline dropped its negative news, the UK-based CAB Payments Plc had
seen its share price fall 72% after revising its revenue guidance downward.
In August, Adyen NV faced a selloff after disappointing results from the first half year. These incidents have led to a growing sense of unease among investors,
who are increasingly impatient with European fintech companies.

According
to KPMG’s Pulse of Fintech report, funding in the second half of 2022
was $63.2 billion across 2,885 transactions, but it fell to $52.4 billion
across 2,153 transactions in the first half of 2023. This indicates a
considerable reduction in both funding and the number of deals.

As the
industry grapples with these challenges, there’s a noticeable shift towards
focusing on long-term sustainability and profitability. A recent report by Finch
Capital revealed that the European fintech sector raised €4.6 billion in the
first half of 2023, a significant drop from €15.3 billion in the same period
last year.

Source: Finch Capital

While
seed-stage companies continue to attract investment, those in the Series A to C
stages are most affected. The payments sector, usually robust, has seen a
decline, whereas cryptocurrency and blockchain companies are gaining more investments in the early stages.

The leading
French-based payment processor Worldline, has sent ripples of concern through
Europe’s fintech sector by cutting its sales outlook. The announcement led to a drop of more than 50% in the company’s stock, erasing €3.8 billion from its market
value and reducing it to around €2.7 billion. This comes amid increasing
skepticism from investors about the fintech industry’s sustainability,
especially in Europe.

At first
glance, Worldline’s report looks good. The company announced that revenue
reached €1.18 billion, translating to an organic growth of 4.8% compared to Q3
2022. The growth was primarily driven by its “Merchant Services”
segment, which saw an increase of nearly 8% to €868 million.

However,
Worldline also noted a macroeconomic deterioration in some of its core regions
and the termination of some important relationships. Worldline’s announcement
specifically highlighted challenges in the German market and rising risks of
fraud and cybercrime.

These
issues have forced the company to sever ties with some clients, impacting its
growth and profitability. Earlier this year, the German financial watchdog Bafin
had imposed severe restrictions on a Worldline subsidiary for failing to
prevent credit card fraud. As a result, the company expects to lose as much as
€130 million in revenue.

“The
scope of such online merchants could
represent a maximum of c. € 130 million in run rate 2023 revenues, of which c.€
30 million impacting H2 2023 and c. € 100 million mostly in H1 2024 impacting
comparison basis,” the company commented in the official press release.

As a result
of the release of negative news, Worldline’s shares on the Paris stock exchange
lost nearly 60% on Wednesday, falling to historically low levels. On Thursday
morning, they briefly deepened these lows, testing €9.01 per share.

Broader
Problems of the Fintech Sector in the EU

Just a day
before Worldline dropped its negative news, the UK-based CAB Payments Plc had
seen its share price fall 72% after revising its revenue guidance downward.
In August, Adyen NV faced a selloff after disappointing results from the first half year. These incidents have led to a growing sense of unease among investors,
who are increasingly impatient with European fintech companies.

According
to KPMG’s Pulse of Fintech report, funding in the second half of 2022
was $63.2 billion across 2,885 transactions, but it fell to $52.4 billion
across 2,153 transactions in the first half of 2023. This indicates a
considerable reduction in both funding and the number of deals.

As the
industry grapples with these challenges, there’s a noticeable shift towards
focusing on long-term sustainability and profitability. A recent report by Finch
Capital revealed that the European fintech sector raised €4.6 billion in the
first half of 2023, a significant drop from €15.3 billion in the same period
last year.

Source: Finch Capital

While
seed-stage companies continue to attract investment, those in the Series A to C
stages are most affected. The payments sector, usually robust, has seen a
decline, whereas cryptocurrency and blockchain companies are gaining more investments in the early stages.

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