There is a lot of capital being poured into the consumer fintech space. And there seem to be an ever increasing number of larger scale unicorns who have yet to go public. More and more companies are waiting to ‘exit’ and the average time staying private has been increasing. This means that there are a lot of companies in fintech private markets that are holding onto their data still, and unless you’re an investor in ‘said company’, it’s difficult to come by. But getting access to these mature fintech numbers does help when evaluating younger companies, or comparable companies. Luckily, Acorns is going public via a SPAC with Pioneer Merger Corp., where they’ll trade under the ticker OAKS on the Nasdaq exchange.
Acorns released an investors deck which is beautifully done (all snapshots below are from the shared deck). You can tell a designer was allowed in to make it visually appealing. Although some of the graphs they use have missing Y axes, data pulls which evaluate metrics based on differing timelines (or uneven ones), list ten pages of risks at the end of the deck, and do certainly show a story they’re trying to hammer home: we’re large, growing, and not even close to being done.
Below are just my general (and scattered) thoughts, as I enjoy writing. I’ll point out a few things I found strange in the deck.
But when evaluating companies, the metrics you choose need to match the business model you’re looking over. And sometimes a company will avoid showcasing metrics that don’t fully showcase an upside story, so it’s important to always second guess if what you’re seeing is best. For example, when you evaluate a consumer (retail) business, tracking consumer subscription style metrics is likely best. These can take the form of activations (source attribution), CAC (by paid, organic, mixed), funnel-flow, where you can then overlay all of this with time series. Then usage and retention metrics (on DAU, WAU, MAU) along with the actual revenue, and cohort analysis across those users. Following, you can review single product vs. multi-product against the cohorts and user buckets, then lastly funnel this up into CAC Paybacks, and LTV/CAC ratio.
What I covered above is super high level, yet can usually be done somewhat easily. A caveat to this is that understanding the numbers and what they normally would do over time is as equally important as choosing the correct metrics to measure. For example, when early stage companies begin to track CAC, it’s usually the cheapest they’ll ever be able to acquire a customer (does anyone know what Acorn’s CAC was in 2015?). This is because the types of clients they land at the earlier stage are more than likely being captured by word of mouth, direct referrals, or finding the company by a blog, press release, or a speaking engagement. As companies mature, CAC increases given that the expected target audience has been tapped into for the past 5+ years. Yet it’s normal (and expected) for this to happen.
Diving into Acorns – it’s important to know they’re targeting a unique term that I see more and more: financial wellness. That market is big and growing. It’s also ambiguous. Coincidentally, Acorns is big and still growing – and saying they’re building a ‘financial wellness system’ allows for big swings. With over 4 million customers currently, they’ve doubled since 2019 alone.
You will notice that their business operates slightly like a SaaS company, and slightly like a more traditional one when it comes to metrics to benchmark. This is showcased when you tie numbers together in a non-linear fashion throughout. For example, CY21E CAC is $43, while CY21E ARPU is $30. Although LTV:CAC CY21E is 3.4x. How can that be? It’s the power of expecting your client to stick with you, use more of your products, or provide higher yields.
To get started, below is a beautiful way to show simplistic cohort analysis that is a shot in time.
- Churn: 1.3% churn per month based on a rolling 6 month average of 2019.
- Or said otherwise, they have a monthly retention of 98.7%.
- I would like to know why they put 2019 vs. 2020 down.
- Gross margin: 80%+ on scalable infrastructure
- Revenue breakdown:
- 79% is subscription based
- 21% is non-subscription, but they do capture interchange, brand partnerships and bank fees.
- Growth: expecting to have 10 million customers by 2025. Currently at four million. That took them six years.
- Cohort analysis: 79% of all cohorts retained since 2014.
- This calculation was based on a weighted average. I am unsure what constitutes someone in there. For example, an account that still has money in it and at least continues to utilize the round-up functionality?
- I was one of the users who did churn having played around with the app in 2015, not finding much use in the app then.
- This calculation was based on a weighted average. I am unsure what constitutes someone in there. For example, an account that still has money in it and at least continues to utilize the round-up functionality?
NPS is also listed in their material. This is a metric I like, but it must be taken with a grain of salt.
- Personally, if you ask me to fill out a form when I’m in a poor mood, it’s likely to reflect that.
- Asking someone to fill out a form when the market is experiencing a period of downward market movements could actually have a customer rate the app less than favorable.
- NPS is a weaker indicator for earlier companies. The sample size is too small, and the clients you likely have landed could be disproportionally hand held compared to once you’re past identifying product market fit and begin to scale.
Acorn’s is still high, and for a company with a client base of more than four million, it is impressive regardless coming in at 61.
Getting to DAUs which I covered at the beginning, Acorns shows promising graphs. But watch closely. A lot of these only have an X axis labeled which is slightly a pet-peeve of mine. They also have point in time snapshots that of a 13 month period ending the end of Feb ‘21, which must have been because it was the most recent given data cleansing takes time (perhaps?). But the below shows you that the premium tier, specifically $5 monthly is the largest group. Additionally, it shows you that is has the most growth.
It’s easy to get stuck there, until they show the next slide. Below showcases that only 8% of their total customers are bucketed into the $5 category, and only 14% sit in the new customers to run rate mix. Both being the lowest. And although we shouldn’t discount them converting from a freemium model, is is visually misleading. And although this data shows analysis that ties into the above graph, the time stamp is the end of March ‘21 here – which makes me want to ask, why isn’t is all similar?
And as we move down the deck, we get into product roadmap, growth opportunities, and ancillary products that will be rolled out and in turn increasing the ARPU. This is a slide which showcases what anyone wants, growth.
As you’ll note, estimated 2021 is at $30. This graph does not denote the time horizon as to when it would be accomplished, but it does succinctly show (I personally love these types of slides) how they do plan to roll out the products, and capture based on a current expected pricing model. It’s super important to note that future business plans are always subject to change. So for example, noting that your ESG capabilities will penetrate 30%, that’s a floating number. Additionally, note down that the above slide also boxes in what their Premium Tier Expansion and add-ons are. Debit card spending to debt optimization are included there, yet not part of their expansion plans.
As we continue we get into the good SaaSy metrics and more traditional metrics that do show strong results. Although I personally (for intellectual curiosity) see a longer historical time horizon, beginning in 2019 does show promise. Below you’ll note that while GM hovers once it hits YE 2021, your LTV:CAC continues to increase. I would have expected that specific ratio to be slightly higher, but as you can tell from the right hand side, S&M is around 40%. This tells you that it costs money to land those clients and organic isn’t the driving force. Super normal for a company this size.
Lastly on Acorns, the good bits: financials. The first take for me is how they’re unprofitable with four million customers, and in 2023 with eight million, they’ll still be unprofitable. But hey, who actually cares about profitability these days, am I right?
There isn’t anything too crazy as you look it over. The one piece is the $500M hitting their balance sheet this year with Pioneer. But as they continue to land a million + clients annually, their total ARPU increases. That cost of revenue also increases (check). Margins improve from ~80% today to 86%, and your operating expenses as a percent of revenue continues to decrease (all looking good so far, and great if they can hit 86%).
What I would have liked to see is a projection further out than two years from now. The deck references massive continued growth. Lets see that in the numbers.
Overall the deck is one I think everyone who’s interested in this space should review. It’s not too often that a consumer PFM goes public and shares their details. I would have loved to see some timelines that came up to the end of March, where all they showcased could be evaluated equally over an identical time horizon. I would have also enjoyed seeing material on their marketing efforts and how efficient their funnel-flow is, when the land a customer, the time it takes, the main reason for losing them, etc.
I’m looking forward to seeing how the company performs post-transaction. There is a lot of hype in the space right now and having a solid win only increases capital deployed to further fuel the FinTech fanatics!
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