Why Flutterwave’s $3 billion valuation is raising dusts

Flutterwave got a new valuation after it was able to raise $250 million from a Series D funding round. The funding round sees the company’s valuation now stand at $3 billion, which makes the company Africa’s most valuable startup as of the time of this writing.

 

 

At $3 billion, using an exchange rate of N570 to one United States’ dollar, it means Flutterwave’s valuation is approximately N1.71 trillion. Because of its trillion-dollar status, we took a look at the Stocks Worth Over One Trillion (SWOOT) and when compared to these legacy organizations that have attained this feat, and listed on the Nigerian Exchange Group (NGX), it reveals that Flutterwave is more valuable than Nestle Nigeria, which currently has a market capitalization of approximately N1.14 trillion as at close of market on Thursday, February 17, 2022.

Looking at the tier-1 banks, the FUGAZ, asides from being more valuable than each of them individually, Flutterwave’s new valuation means the firm is more valuable than the two most valuable banks listed on the NGX, ZENITH and GTCO, combined.

These two legacy banks have a combined market capitalization of N1.62 trillion as of close of market on Thursday. It is also more valuable than FBNH, ACCESS and UBA combined. The trio have a combined market capitalization of N1.07 trillion as of close of market on Thursday.

The valuation also means that Flutterwave would rank #5 on the SWOOT list, making it the fifth most valuable company when compared to the companies listed on the NGX. Its valuation would also account for 6.74% of the total equity market capitalization of NGX which currently stands at approximately N25.4 trillion as of close of market on Thursday.

Flutterwave got unicorn status, which is a name given to companies valued at $1 billion, in March 2021, in a Series C funding round, where the firm was able to raise $170 million, led by Avenir Growth Capital and Tiger Global Management. Its latest funding round shows that the firm has tripled its valuation and this was led by B Capital Group and also saw participation from Alta Park Capital, Whale Rock Capital, Lux Capital among others while existing investors involved include Glynn Capital, Avenir Growth, Tiger Global, Green Visor Capital and Salesforce Ventures.

According to the organization, it has processed over 200 million transactions worth over $16 billion to date and serves more than 900,000 businesses including customers like Uber Technologies, Flywire, Booking.com, Alibaba’s Alipay and so on.

However, does this volume of transactions justify such a lofty valuation? The tech industry has raised tens of billions of dollars globally, aided by cheap funds and stoking fear of a global bubble. Nigeria’s is not an exception with the likes of Futterwave, OPay, Paystack etc, raising hundreds of millions of dollars in the course of the last three years.

Data from NIBSS indicate total online transactions topped N6 trillion ($10.5 billion) in 2020 as Nigerians adoption of digital means of payments increased. However, there is no clear leader in online transactions and margins are quite low. For example, in 2020, Nairametrics reported top banks earned about N216 billion in e-business income without deducting fees and other associated costs of generating the income.

This, therefore, suggests, for Flutterwave to justify such a huge valuation it needs to earn between $400-$600 million in profits, twice what the largest Nigerian bank makes as profits.

What do experts think of Flutterwave’s new valuation?

Speaking with Opeoluwa Dapo-Thomas, an International financial analyst, he gives his thoughts on the Flutterwave valuation. He said the Flutterwave Series D funding deal of $250 million is a commendable feat, adding that the deal is a plus to the Nigerian tech ecosystem, and should provide an incentive for government that once they create a proper business enabling environment, foreign investments would flow in.

“It has also provided a much-needed boost for other startups that investors are interested in our markets as long as the product is right. Because the truth is, the startup industry is a game of future earnings and not necessarily current profits and revenue. For an investor or VC to bet on you, they believe in your product and founders should focus more on getting the right product that solves a problem like how Flutterwave is solving the problems in the payments space.

“Also, concerning the valuation of Flutterwave, we in the investment world know that startup valuations are more of art than science. The data available doesn’t give you the real intrinsic value of the company, we work with estimates and future potential. Is a company trying to solve the payments space in Africa valued at $3 billion farfetched given that Africa’s economy is over $2 trillion? Then how much of Africa’s market share can they acquire? I guess this would be answered in future as they scale with this new funding,” Dapo-Thomas said.

Fisayo Durojaye, an investment professional, EchoVC also gave his views, noting that, “The challenge is that we don’t have real insights into their numbers. We don’t know how much transactions they are doing. The volume processed, take rate etc. So, it’s difficult to comment on the valuation.

“However, from the outside, we can see that Flutterwave is not telling the payment story alone. Recent sponsorship with Wizkid suggests that they are getting into the remittance business. And with a player like Wave hitting a unicorn status on remittance alone, Flutterwave reaching $3 billion on remittance and payment is not farfetched.”

Durojaiye added that the $3 billion valuation means that the investors think that it could still double, triple or quadruple the valuation. He said this is because these investors too want to make money. So, it means that the opportunity Flutterwave is chasing is big enough to value it at $3 billion today.