Revolut

Revolut is the digital banking alternative designed for your global lifestyle.

Summary

Consumers and businesses worldwide are being underserved by expensive banks with dated technology. A survey of 9,000 bank customers in nine countries revealed that 77% of customers globally are unsatisfied with their bank.

We're creating a world where money moves freely at your pace, wherever you are. Revolut is a digital banking alternative designed for a global lifestyle. You can set up a current account in 60 seconds, hold and exchange 16 currencies at the interbank exchange rate, make free international money transfers to any bank in the world and spend fee-free globally with a contactless MasterCard. In just two years, Revolut has acquired more than 750,000 customers who have transacted over $4.2 billion.

The fast-moving Fintech has also launched a business platform that enables companies to hold, exchange and transfer 25 currencies at interbank rates and issue corporate cards for global fee-free spending. 12,000 global companies and scaling start-ups.

Operations

Revolut was launched in July 2015 by ex-finance professionals who have a distinctive ambition to build the future of money beyond banking. The idea came from a common frustration with exchange rate mark-ups, foreign transaction fees and a lack of technological innovation from the big banks.

Banks charge insane fees to spend or transfer your money in a foreign currency. A typical UK bank customer is charged up to £25 to transfer $500 to a bank in the United States with an exchange rate mark-up of 3-5%. For international card payments, banks charge as much as 6% on every transaction.

Today’s hyper-connected world deserves a financial partner just as progressive. One that adapts to your needs, gives you control and constantly pushes you into new exciting spaces. Revolut is a new Global Banking Alternative that enables free international money transfers, fee-free global spending - always at the interbank exchange rate.

What is the mission of Revolut?

Their main goals are to:

1. Make banking services more convenient: Revolut aimed to simplify and streamline traditional banking processes, offering a user-friendly mobile app and various features that allowed customers to manage their finances more efficiently.

2. Offer low-cost currency exchange: Revolut's app provided users with the ability to exchange and spend money in different currencies at interbank exchange rates without additional fees.

3. Facilitate cryptocurrency trading: Revolut was one of the early fintech companies to allow users to buy, hold, and exchange cryptocurrencies through their platform.

4. Enhance financial control and budgeting: The app offered tools for tracking expenses, setting budgets, and providing insights into users' spending habits, helping them manage their finances better.

5. Provide a global presence: Revolut aimed to expand its services to various countries, offering international money transfers and borderless banking solutions to individuals and businesses worldwide.

What is the vision of Revolut?

Key components of Revolut's vision include:

1. Accessibility: Revolut wanted to make financial services accessible to everyone, regardless of their location, income level, or financial background. By offering a wide range of services and eliminating unnecessary fees, they aimed to democratize finance and provide better financial opportunities for their customers.

2. Innovation: Revolut sought to stay at the forefront of financial technology by continuously innovating and introducing new features and products. This included expanding into areas such as cryptocurrency, investment products, and business banking to cater to evolving customer demands.

3. Global Reach: The vision of Revolut was to expand its services worldwide, providing seamless and borderless financial solutions to customers in different countries. Their international money transfer capabilities and multi-currency accounts were part of this strategy.

4. Financial Control and Empowerment: Revolut's vision was centered on empowering its users to have greater control over their finances. By offering budgeting tools, spending insights, and customizable account features, they aimed to help customers make informed financial decisions and improve their financial well-being.

5. Disruption of Traditional Banking: Revolut's ultimate vision was to challenge and disrupt the traditional banking model, offering an alternative that embraced digital technologies and customer-centric solutions.

Substantial accomplishments to date

In just two years, Revolut has grown to over 750,000 active users who have transacted over $4.2 billion to date. An average of 1,700 new customers sign up every day.

As a testament to the product, Revolut’s user acquisition is primarily driven by recommendations from friends and family. For an early growth comparison, TransferWise - a well-known Fintech unicorn launched in 2011 - only processed €10 million in client funds in their first year.

This crowdfunding is part of a $66m investment round from some of Europe's most well-known Venture Capital firms including Index Ventures, Balderton Capital and Ribbit Capital. The hot Fintech startup has also regularly attracted the attention of international media, with regular coverage in the Telegraph, Times, Financial Times and CityAM.

In July 2015, Revolut’s £1m crowdfunding campaign was oversubscribed by over 10,000 would-be-investors who pledged to invest £17m, all of whom were Revolut users.

Revolut was also notably:

- Nominated alongside Pokémon Go and WeChat for ‘The Best Overall Mobile App’ award at the largest Mobile Conference in the world.

- Selected from over 1,500 European FinTech’s to be named on the ‘Fintech50 2017’ list of the hottest European startups.

- Awarded the ‘Hottest FinTech Startup’ award at the Europas 2017.

Monetisation strategy

Revolut has 3 main revenue streams: (1) MasterCard© interchange (2) consumer add-ons and (3) business accounts.

Revolut gains a cut of the revenue from the fee (interchange) paid to MasterCard© by merchants in order to process their payments.

In April 2017, Revolut launched an annual, paid Premium service which costs £6.99 per month or £72 per year. Over 10,000 customers signed up within the first two months, with droves of new customers joining every week. Other revenue streams include Revolut credit which can be accessed from the app. Revolut also promotes new game-changing start-ups in the app and gains a fee for every Revolut customer who signs up.

Revolut for Business is a subscription-based web service that enables companies to manage international payments and corporate travel. Over 12,000 FTSE 100 companies and scaling start-ups are currently being on-boarded.

Use of proceeds

The funds raised will be used in two ways: (1) International expansion and (2) product development.

Starting in 2017, the fast-growing startup will be expanding internationally, with the aim of establishing itself as the number one platform for consumers and businesses for managing their finances. Revolut intends to initially expand its services across North America and Asia.

The equity raised will be used to hire a world-class team of International Expansion Managers, paying for the infrastructure and relevant licensing required to operate across new territories and to accelerate customer acquisition globally.

Revolut will also use the funds raised to accelerate product development for its consumer and business products. Currently some of Revolut’s services are made available in the Revolut app via partnerships with licensed third-parties. The funds raised will enable Revolut to apply for licences to provide these products in-house, which should in-turn increase profit.

Business and Operational Risks

Understanding the risks is crucial for investors, stakeholders, and the company itself to make informed decisions and implement effective risk management strategies. The following are the risks that are related to Revolut.  

Regulatory Compliance Risk: Revolut operates in multiple countries and is subject to a complex web of financial regulations, including anti-money laundering (AML) and know-your-customer (KYC) requirements. Non-compliance with these regulations could lead to severe penalties, fines, and reputational damage, potentially affecting Revolut's ability to operate in certain markets.

Cybersecurity Threats: As a leading fintech company, Revolut is a prime target for cybercriminals. The risk of data breaches, security vulnerabilities, and unauthorized access to sensitive customer information is a significant concern. A successful cyber attack could lead to financial losses, legal liabilities, and damage to customer trust.

Currency and Market Risks: Revolut's offerings, including foreign exchange and investment services, expose the company to currency exchange rate fluctuations and market risks. Sudden market changes could impact Revolut's revenue and profitability.

Licensing and Expansion Challenges: As Revolut plans to expand into new markets, obtaining the necessary licenses and regulatory approvals is critical. Delays, denials, or difficulties in meeting regulatory requirements could hinder Revolut's expansion plans and increase operational costs.

Dependence on Third-Party Providers: Revolut relies on various third-party service providers to offer certain features and services. Any disruptions, contractual disputes, or security breaches with these providers may adversely affect Revolut's operations and customer experience.

Credit and Default Risks: If Revolut offers credit products, such as loans or credit cards, it faces credit and default risks. Customer defaults could lead to potential financial losses and impact the company's overall financial health.

Financial Viability: As a fast-growing company, Revolut may face financial challenges, particularly if it expands aggressively without achieving sustainable profitability. Ensuring financial stability is crucial for long-term success and investor confidence.

System Outages and Technical Failures: One of the primary operational risks for Revolut is the occurrence of system outages or technical failures. As the company relies heavily on its mobile app and digital platforms, any disruptions or downtime could lead to service unavailability, transaction failures, and customer dissatisfaction. Such incidents may result from hardware failures, software glitches, or cyber attacks, and may cause reputational damage and financial losses.

Transaction Processing Issues: Efficient and accurate transaction processing is essential for Revolut's success. Errors in processing customer transactions, delays in fund transfers, or failures in payment processing could lead to customer complaints, regulatory scrutiny, and potential financial liabilities.

Customer Support Challenges: As Revolut continues to grow its customer base, providing timely and effective customer support becomes increasingly critical. Operational risks arise if the company cannot meet customer inquiries, complaints, and requests adequately. Poor customer support may lead to dissatisfaction, churn, and negative word-of-mouth, impacting Revolut's brand image and customer retention rates.

Scalability and Infrastructure Risks: As Revolut expands its operations and customer base, scalability becomes a critical concern. Rapid growth may strain the company's infrastructure, leading to performance issues, slower response times, and potential service outages. Ensuring that the infrastructure can handle increased demand and maintaining scalability is vital for sustained growth.

Internal Process Risks: Inefficient internal processes and lack of proper controls can introduce operational risks for Revolut. Errors in internal operations, compliance oversight, or inadequate risk management practices may expose the company to financial losses, regulatory issues, and reputational damage.

Business Continuity and Disaster Recovery: Having robust business continuity and disaster recovery plans is crucial for Revolut to ensure uninterrupted service delivery. Any major disruptions, whether due to natural disasters, cyber incidents, or other unforeseen events, may severely impact the company's operations and customer trust.

Managing business and operational risks is fundamental for Revolut's long-term success and sustenance in the competitive fintech industry. By implementing robust risk management strategies, investing in technology and infrastructure, and fostering a culture of compliance and customer-centricity, Revolut can mitigate these risks and build a resilient foundation for its business growth. Regular monitoring, continuous improvement, and adaptability to changing market dynamics will be essential to navigate these challenges successfully.

Financials

Financial Statement

Year End Date	31/12/2018	31/12/2019	31/12/2020	31/12/2021	31/12/2022	31/12/2023
Historic/Forecast	Historic	Historic	Historic	Historic	Historic	Forecast
All Values in £000
Revenue	58,240	162,722	219,931	636,205
Growth over Prior Year	353.90%	179.40%	35.16%	189.27%
Cost of Sales	(68,319)	(177,911)	(148,063)	(196,015)
Gross Profit	(10,079)	(15,189)	71,638	440,190
Margin	(17.31%)	(9.33%)	32.57%	69.19%
Administrative Expenses	(23,975)	(92,249)	(274,701)	(367,478)
Depreciation and Amortisation Expense	0	0	(9,629)	(9,079)
Impairment Credit/(Loss)	0	0	220	(1,034)
Other Operating Income/(Expense)	0	0	6,781	(3,508)
Operaitng Profit	(34,054)	(107,438)	(205,461)	59,091
Margin	(58.47%)	(66.03%)	(93.42%)	13.42%
Interest Expense	(16)	(1,249)	(17,373)	(21,026)
Interest Income	1,107	2,052	2,129	1,726
EBIT	(32,963)	(106,815)	(220,705)	39,791
Margin	(56.60%)	(65.64%)	(100.35%)	9.04%
Tax Expense	132	915	(2,917)	(13,451)
Net Income	(32,831)	(105,900)	(223,622)	26,340
Margin	(56.37%)	(65.08%)	(101.68%)	5.98%
Other Comprehensive Income/(Loss)	(40)	(603)	38,331	(6,635)
Total Comprehensive Income	(32,871)	(106,503)	(185,291)	19,705
Margin	(56.44%)	(65.45%)	(84.25%)	4.48%

Balance Sheet

Year End Date	31/12/2018	31/12/2019	31/12/2020	31/12/2021	31/12/2022
All Values in £000
Assets
Current Assets
Cash & Cash Equivalents	1,103,996	2,450,107	5,055,023	7,052,609
Financial Assets at FVOCI	0	0	0	1,236,481
Investment in Commodities at FVTPL	0	0	50,366	66,356
Trade and Other Receivables	0	0	153,242	206,880
Inventories	3,553	13,042	11,282	7,396
Current Tax Assets	0	0	3,856	7,291
Loans & Advances to Customers	41,442	59,089	415	4,870
Derivative Financial Assets	0	0	121	9,294
Total Current Assets	1,103,996	2,522,238	5,274,305	8,591,177
Non-Current Assets
Property, Equipment & Right-of-Use	3,856	11,940	37,497	25,128
Intangible Assets	37,012	93,927	411	721
Loans & Advances to Customers	0	0	961	12,946
Deferred Tax Assets	0	0	345	1,783
Total Non-Current Assets	40,868	105,867	39,214	40,578
Total Assets	1,144,864	2,628,105	5,313,519	8,631,755
Liabilities
Current Liabilities
Trade & Other Payables	0	0	143,663	165,248
Loans at Amortised Cost	21,935	45,259	81,812	122
Customer Liabilities	927,685	2,362,385	4,637,230	7,361,196
Current Tax Liabilities	0	0	1,670	9,374
Lease Liability	0	0	5,985	5,161
Derivative Financial Liabilities	0	0	1,970	2,454
Total Current Liabilities	949,620	2,407,644	4,872,330	7,543,555
Non-Current Liabilities
Loans at Amortised Costs	1,173	123,247	0	0
Provisions for Liabilities	0	905	1,788	1,812
Lease Liability	0	0	18,943	9,085
Deferred Tax Liabilities	0	0	18	243
Total Non-Current Liabilities	1,173	124,152	20,749	11,140
Total Liabilities	950,793	2,531,796	4,893,079	7,554,695
Equity
Share Capital	0	0	0	0
Share Premium	247,677	248,814	697,444	1,287,452
Accumulated Losses	(56,444)	(162,947)	(344,300)	(317,960)
Other Reserves	1,838	10,442	67,296	107,568
Total Equity	194,071	96,309	420,440	1,077,060
Total Liabilities & Equity	1,144,864	2,628,105	5,313,519	8,631,755

Cash Flow Statement

Year End Date	31/12/2018	31/12/2019	31/12/2020	31/12/2021	31/12/2022
All Values in £000
Operating Activities
EBIT	(32,963)	(106,815)	(220,705)	39,791
Interest Expense	(16)	(1,249)	17,373	21,026
Interest Income	1,107	2,052	(2,129)	(1,726)
Operaitng Profit	(34,054)	(107,438)	(205,461)	59,091
Amortisation of Intangible Assets	0	13	174	176
Depreciation of Tangible Assets	478	1,319	9,455	8,903
Impairment of Intangible Assets	0	0	0	7,278
Impairment of Financial Assets	0	0	(220)	1,034
Share Based Payment Expense	1,868	8,626	57,182	47,351
Fair Value Losses on Customer Liabilities in Respect of Cryptocurrencies	49,161	63,887	38,659	0
Increase in Provisions Net of Payments Made	0	0	10,625	6,913
Net Fair Value Losses on Derivative Financial Instruments	26,501	7,549	1,850	(8,689)
Operating Cash Flows Before Changes in Customer Balances & Hedging Arrangements & Changes in Working Capital	43,954	(26,044)	(87,736)	122,057
Working Capital Movements
Decrease in Inventories	2,961	9,488	1,760	3,886
Loans Extended to Directors	0	0	0	(3,200)
Loans Settled by Directors	0	0	0	3,216
Increase in Trade & other Receivables	0	0	(27,337)	(69,468)
Increase in Trade & other Payables	0	0	(1,147)	94,489
Operating Cash Flows Before Changes in Customer Balances & Hedging Arrangements	46,915	(16,556)	(114,460)	150,980
Customer Balances & Hedging Arrangements
Net Increase in E-Money in Issue	702,671	1,378,558	2,263,427	2,174,430
Increase in Negative Customer Balances	0	0	(7,687)	(8,186)
Decrease in Net Settlement Balances	0	0	17,447	(63,979)
Increase in Customer Liabilities in Respect of Cryptocurrencies	0	0	136,142	0
Increase in Cryptocurrencies	22,742	56,128	(135,970)	0
Increase in Customer Liabilities in Respect of Commodities	0	0	49,904	15,543
Increase in Investment in Commodities at FVTPL	0	14	(50,366)	(15,990)
Net Increase in Loans & Advances to Customers	0	0	(1,389)	(16,440)
Net Increase in Customer Deposits	(7,923)	10,696	49,875	533,970
R&D Credit	0	0	1,342	3,856
Tax	(482)	(2,060)	(301)	(9,901)
Effect of Exchange Rates	(676)	(32)	0	0
Net Operating Cash Flows	659,779	1,279,292	2,207,964	2,764,283
Investing Activities
Purchases of Property & Equipments	(3,931)	(9,404)	(6,236)	(1,684)
Developing or Acquiring Intangible Assets	0	(85)	(6)	(5,168)
Interest Received	1,107	2,052	2,129	1,726
Purchase of Financial Assets at FVOCI	0	0	0	(1,242,842)
Net Investing Cash Flows	(2,824)	(7,437)	(4,203)	(1,247,968)
Financing Activities
Proceeds from Issue of Ordinary Shares Net of Transaction Costs	181,143	0	448,535	601,878
Proceeds from Exercise of Share Options	0	137	95	0
Interest Paid (Including on Lease Liabilities)	(16)	(452)	(18,329)	(19,213)
Principal Payments on Lease Liabilities	0	0	(3,759)	(4,740)
Loans Repaid	0	119,456	(37,734)	(81,690)
Net Financing Cash Flows	181,127	119,231	388,808	496,235
Cash & Cash Equivalents (Beginning of Year)	220,914	1,059,001	2,462,986	2,592,568
Effect of Exchange Rates	5	20	(531)	(14,964)
Net Increase in Cash & Cash Equivalents	838,082	1,391,086	2,592,568	2,012,550
Cash & Cash Equivalents (End of Year)	1,059,001	2,450,107	5,055,023	7,052,609

Valuation

What's the Current Value of Revolut

As at its last Series E fundraise of $800M in July 2021 , Revolut was valued at $33bn. The E round saw investments from Softbank, Tiger Global, etc. and placed Revolut as the most valued fintech in the UK and the second top in Europe just behind Klarna at the time. Having only been valued at $5.5bn in its last raise in 2020, this represents about 6X increase on its previous valuation within just 12 months.

Revolut Valuation 2017 to 2021 ($bn)

Year	Valuation ($bn)
2017	0.4
2018	1.7
2020	5.5
2021	33

Sources: Pitchbook, Company data

To understand the intrinsic value of Revolut, the stockhub user has decided to compare the performance of Revolut with its comparables or close competitors. For the purpose of this report, the close comps adopted are Monzo, Starling Bank, and N26.

• Monzo: Monzo was established in 2015, at about the same time of Revolut. Recently valued at $3.7bn in its last round in 2021, Monzo currently has 7 million users and generated £440mn revenue in 2021. Not profitable since it commenced operation.
• Starling Bank: Within a two year period, Revolut, Starling Bank and Monzo were all launched. Starling Bank was launched in 2014 and is currently one of the three top challenger neobanks operating in the UK. As at March 2022, Starling Bank had 2.7 Million active customers and generated £188mn total income in 2022.
• N26: N26 is one of the neobanks that launched in the mid 2010s. Founded in Munich and received a banking license in 2016. Currently has other services such as basic current account, savings and insurance. As with Revolut, N26 currently does not have a UK banking license but operates across Europe with over eight million customers across 24 countries.

For context, in 2021, Revolut reported £636mn annual revenues a total of 15mn registered users.

Revolut valuation based on comparable companies; Monzo, Starling Bank, and N26. Sources: Company Financials, Pitchbook

Judging by the value of comparables, the Stockhub User estimates the fair value of Revolut to be between the $10bn - $20bn mark. However, given the fact that Revolut and some of its comparables are private companies, investors might have thought differently about Revolut and thought it was a reasonable valuation ($33bn) to invest in at the time. Notable factors in the Revolut valuation:

• UK banking license: While Revolut peers such as N26 have opted against acquiring a UK banking license possibly due to regulations, Revolut has always been vocal about its intentions to grow to the required process to get a UK banking license. Investors might have assumed Revolut to receive a banking license sooner rather than later thereby gaining access to cheaper capital and other revenue pools such as mortgages, deposit bank accounts, etc. However, the process has taken much longer, and till the point of writing this report, Revolut is yet to secure a UK banking license to allow it operate in the UK.
• Tech Boom at the time of Raise: Generally, 2021 was a good year for tech companies to raise. Given the recent market conditions including the liquidation of SVB and Credit Suisse amongst others, 2023 has seen a downward revaluation in the prices of tech companies with the Nasdaq index losing a third of its value in 2022 alone. As such, some of the Revolut investors have now reevaluated their positions and even marked it down internally. Given the private nature of Revolut, the 'downward revaluation' of Revolut is non-existent until Revolut go on the market to raise capital at a value lower than its current $33bn valuation. The Stockhub user expects Revolut to wait till market conditions are much favorable before accessing the market for further capital.

Actions

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