Billionaire investor J. Christopher Flowers is nervous there’s a bubble rising in the monetary know-how market.
“I think there are a lot of indicators that there is a bubble” in fintech, Flowers, CEO of funding agency J.C. Flowers & Co, instructed CNBC’s Annette Weisbach in an interview.
Fintech corporations have seen their market values soar in each the private and non-private markets over the previous yr, with some corporations buying and selling at greater valuations than main banks.
PayPal, for instance, has a market cap of $242 billion, greater than that of Wells Fargo or Citigroup. Sq., the fintech enterprise of Twitter CEO Jack Dorsey, is value almost $107 billion, greater than U.S. Bancorp.
Amongst privately-held corporations, Stripe was final valued at an eye-watering $95 billion.
“If you look at traditional — or even not so traditional — valuation metrics, many companies trade at 10 times what a normal company would trade at for that kind of thing,” Flowers stated.
“There are also many examples of companies which really aren’t very good trading at high valuations,” he added, with out naming any names. “It’s a mixed bag. There’s a lot of fluff out there.”
Buyers have flocked to high-growth corporations at a time when rates of interest are at historic lows and cash is low-cost. Fintechs have additionally benefited from a surge in demand for on-line companies throughout the coronavirus pandemic.
Nonetheless, Flowers thinks there’s cash to be made in the sector.
“On the other hand, there’s also many interesting trends and opportunities in fintech as well,” he stated.
Buyers ought to deal with corporations in the funds sector quite than lending corporations, Flowers stated. Market gamers also needs to again worthwhile fintechs over loss-making ones, he added.
“Companies that make money, at least on a unit basis … are a lot more interesting than ones that say they’re going to make money but actually lose money,” he stated.
Flowers, 64, started his profession at Goldman Sachs earlier than founding his personal fairness agency J.C. Flowers & Co in 1998.
He is maybe finest identified for his function in the 2008 monetary disaster, having helped advise Financial institution of America and Merrill Lynch on their merger. Based on Forbes, Flowers’ internet value is $1.2 billion.