2020 - Revolut annual report

Revolut annual report has dropped and I am absolutely blown away by the amazing work they’ve done!

UK fintech remains confident about outlook and says it is on track to break even this year

  • Revenue tripled from £58 million to £162 million
  • Customer growth increased from 3.5 million to 10 million
  • Customer deposits increased from £890 million to £2.3 billion
  • Daily active customers up 231%, paying customers up 139%
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It’s incredible how a company like Revolut is doing so well.

After dealing with their customer service myself, I got an extremely bad vibe from them, not to mention the negative reports that have come out about management etc.

Having said that, they’re not doing that well, because it looks like their losses have actually tripled.

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Lol :clap::clap::clap:

This does not seem much better than Monzo, yet you celebrate it while slamming Monzo whenever you can :thinking:

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Guys, let’s remain polite, please. The whole industry has a lot to learn from their execution.

Their premium accounts also have a ton of useful features bundled together and a clear value proposition without getting into details.

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Couple of things caught my eye

Pension note about 1m quid outstanding at year end when charge for year not a huge amount more than that. Maybe for overseas pension contributions are paid in arrears , or maybe they were really struggling with cash even with the loan

The accounting for crypto assets held for users is a bit bizarre (but they are doing what is considered best practice) and I think it has impact on margins and other income as any reval up or down is offset by movement in creditors. If crypto gets a bull run on for the year they could have some big numbers on this which I think make more sense being net in the PL if they are purely acting as a no liability custodian

That loan looks quite penal , although I don’t blame one bit for taking what they can , when they could as they probably had a good idea sector would take a hit and they clearly knew of the issues at Wirecard so had a migration and possible loss of customers to come

Not so bad overall but they must have put a massive amount into the incentive/ambassador/referral schemes as the direct costs must be largely impacted by marketing

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Spot the Monzo investors :joy:

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If thats meant for me, you called that wrong. :laughing:

I think Monzo are a dead duck to be honest as I just don’t see how they will make money. Investor appetite very low as they only got 50 + when they were looking for lots more and that led to the GC note of course as they do not have funds for 12 months as they are and do need another round relatively quick I think especially if Covid carries on and there is more impact on assumption on debt profiles that could also hit Reg Cap again.

If I look at the “top 3” I like Starling and Reveolut, but really don’t get Monzo.

I like Starling as its run by a banker, had one cornerstone investor for a long time and recently took on another , but they have never had to hype and PR to get the next VC’s dribbling for the next round. They have had a couple of things go their way as well, the 100m of Govt grant that they spent about 16m of and still have the rest in creditors but of course have the cash in hand.
Covid has allowed them to lend with a Govt guarantee on most of that book, compared to Monzo lending small amounts in way of OD and some loans with no guarantee and to I think a relatively high risk client base (job losses at the gig economy, Genz etc are brutal now).
Without the Covid injection and BBL Starling were OK at the accounts numbers but have cranked it up last few months. I think it was also telling that they were one of the only banks to do an element of fraud check on BBL applications so are probably quite protected on the Govt Guarantee compared to others who borrowed the Feds printing press for the 50k’s

For Revolut , I like the product a lot, I use it a lot but don’t really see how they make money off me and how they will in future. They are convenient and pretty fair and do seem to be taking on areas others kept well clear off such as crypto and were clearly very close to Wirecard. That for sure has helped the growth, but may have risks that bite them on the arse as well.
I do think that Revolut as well are run a lot more as a business and focus a bit more on growth that has potential to become profitable (probably older clientele than Monzo) and are less gimmicky and not so driven by PR hype.

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There are a few VC’s and crowd who were and still are sat on a fair bit of upside, but it would appear didn’t want to pump more into the coral earlier in the year. Of course we won’t know until next years confirmation statement filing , but I assume the 50 m came from the guys mainly who paid 13 and wanted to average down a bit. If YC funded on basis of US roll out will be interesting to see how US may take priority over UK given the CEO is also more US than UK

Monzo Shareholder Book Valuations at Round F

Monzo Shareholders by %

Some are sat on big paper gains even after the haircut and bonus shares to the recent round

This is incorrect. The report specifically said they have no cash flows issues for the next 12 months at least.

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No you are wrong. If they had cash in hand to last for 12 months according to their forecasts then there would be no need for the auditor to use a emphasis of matter as they would have no uncertainties about being able to trade for the next 12 months.
Of course the auditor would also take into account that they as a PRA regulated bank also have capital resource constraints to comply with so they may have cash to pay the payroll, but if they breached reg capital they would have to fix that pretty damn quick and also of course notify PRA as soon as they thought that may be an issue. That’s then like a mouse in a spinning wheel as then the PRA may increase Reg Capital needed.
If they bagged the 130m or so I thought they wanted then the emphasis of matter would not be there

They have raised $580m since the year end.

They aren’t going to be running out of cash soon.

Yep, Revolut are in very good shape funding wise and also gives them a big stack of Reg Capital to be able to take more risk to grow and scale.

With that kind of war chest as well if they wanted to throw the kitchen sink to attract other banks users by incentives they could although I don’t see they would as target niche/sectors seem to be different with Revolut in between the Monzo Cult type sector and the Starling older and Corporate, but Revolut clearly fancy the Business side as well.

Once they are passported fully in EU and have a UK license (if they end up wanting one still) they have quite a stack lined up with US, SG and other non EU locations.
They look in good shape

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I’m confused. Their losses have tripled. Did you miss that? Between those losses, and the effect of Covid-19 on people’s spending patterns, I think it’s insanely optimistic for Revolut to think they could go from tripled losses to breaking even in the space of a single year.

I mean, you’re the same guy who thinks that Monzo’s losses doubling is a disaster but Revolut’s losses tripling is a sign of success. Go figure. :man_shrugging:

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A few things I noticed:

  1. Average deposit amount of about 230 each is really low. Clearly a lot of their 10m customers aren’t using this as their main account. Prob people like me who use these fin techs for travelling and other low cost items. Not sure in the long run that is sustainable
  2. Their P&L looks weak. Direct costs higher than revenue. Bad fundamentals to have no operating margin. Although the P&L doesn’t really show much so hard to dig into these numbers.
  3. They seem to have no loan book which is strange for a bank - what are they doing with their 2bn of deposits?
  4. Still heavily reliant on the UK business - hardly any income in Europe
  5. Staff costs aren’t rising too fast which is a good thing but employee numbers more than doubled. Wonder if they were employed late in the year (meaning larger costs coming in 2020)

The difference is Revolut has built an app with trading, crypto, commodities, junior accounts…I could go on but you get the point. All that costs money.

All Monzo have done is tread water - and investors clearly think the same hence the 40% reduction in share price and kicking out Tom…whereas Revolut raised another $80m at the pre covid price…

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I am not wrong. Read the report. It literally says they have no cash flow issues for the next 12 months. The auditors confirmed that. You need to read the report and check your understanding.

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'‘Going concern is an accounting term for a company that has the resources needed to continue operating indefinitely until it provides evidence to the contrary’’. For somebody not familiar with the terminology this might look like trouble though.

Basically EY are doing an emphasis of matter on the disclosures on the material uncertainties relating to going concern.

They of course reviewed relevant plans , business models, spoke to PRA etc and have not qualified the accounts so do believe that Monzo will be around for at least 12 months, BUT there are material uncertainties that could change this as reflected in both the Directors Report and their report.

What does seem clear is that they are relying on

  1. Funding in the next 12 months, the discount to achieve that funding is of course not relevant in this context as company valuation is not a factor.

  2. If Covid continues for 6 to 12 months this may also affect plan and ability to meet Reg Capital requirement. I see this more as an impact on provisions for OD’s and loans as more may go back and the economic indicators would push up provision needed based on modelling even higher given rise to a Reg Capital hit. If COVID does continue would they really want to increase loans and OD’s with inherent uncertainty on jobs and employment affecting ability to repay debt by users which leads to more sleeping deposits

  3. They are expecting a kicker from Monzo Plus and new product (personally I don’t see the value in Monzo Plus), but in reality I think this is a bit of a red herring as cost control is way more important than revenue when you look at the PL ratios in short term until they get more significant funding. They need POS vols to go up which might take a while with COVID again and are relying on management actions, the CEO talks about redundancies and of course staff are one of the large costs so they are also relying on having to make some more tough decisions possibly on headcount

So the auditor has considered that they are able to continue for the next 12 months, but there are material uncertainties that investors, suppliers and customers should be aware of as they are risks.
Monzo Plus take up is clearly key to seeing if they can get a premium product paid for that is high margin as its just a few API’s and to show investors they have some revenue streams given lending is tough currently and brings inherent risk that make lending risky unless its high tier lending.
Without a good take up of Monzo Plus they can probably get funding but the discount would probably be very penal as those writing cheques would call the shots even more than the recent round

We draw attention to the Basis of Preparation
in Note 1 in the financial statements, which
indicates that the ability of the group to continue
as a going concern is subject to material
uncertainty. The group is loss making and its
revenue streams and expected credit losses
have been significantly impacted by COVID-19.
There is a risk that the group will not be able
to execute its business plan, which could
adversely impact its ability to generate profits
or raise capital to meet future regulatory capital
requirements. This has given rise to the following
material uncertainties:

  1. Whether the group will be able to access new
    funds available at the levels required either
    through future equity capital raising or tier 2
    debt;
  2. Market conditions over coming months in light
    of the continuing spread of COVID-19, such
    as the extension of a six month recovery to a
    nine-month or twelve month period instead.
    This would lead to lower than expected results
    against plan, at levels which may cause the
    Group’s capital resources to fall below the
    minimum levels requirements;
  3. Whether the group has the ability to execute
    its business plans, which includes individual
    and collective assumptions relating to new
    product launches, point of sale volume and
    customer growth, and future management
    actions
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