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Does the Hype Surrounding Fintechs Lead to an Overvaluation of Their Stock Prices ?

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Does the Hype Surrounding Fintechs Lead to an Overvaluation of Their Stock Prices ? http://lib.ulg.ac.be http://matheo.ulg.ac.be Does the hype surrounding FinTechs lead to an overvaluation of their stock prices ? Auteur : Lebailly, Catherine Promoteur(s) : Hubner, Georges Faculté : HEC-Ecole de gestion de l'ULg Diplôme : Master en sciences économiques,orientation générale, à finalité spécialisée en Economics and Finance Année académique : 2016-2017 URI/URL : http://hdl.handle.net/2268.2/3573 Avertissement à l'attention des usagers : Tous les documents placés en accès ouvert sur le site le site MatheO sont protégés par le droit d'auteur. Conformément aux principes énoncés par la "Budapest Open Access Initiative"(BOAI, 2002), l'utilisateur du site peut lire, télécharger, copier, transmettre, imprimer, chercher ou faire un lien vers le texte intégral de ces documents, les disséquer pour les indexer, s'en servir de données pour un logiciel, ou s'en servir à toute autre fin légale (ou prévue par la réglementation relative au droit d'auteur). Toute utilisation du document à des fins commerciales est strictement interdite. Par ailleurs, l'utilisateur s'engage à respecter les droits moraux de l'auteur, principalement le droit à l'intégrité de l'oeuvre et le droit de paternité et ce dans toute utilisation que l'utilisateur entreprend. Ainsi, à titre d'exemple, lorsqu'il reproduira un document par extrait ou dans son intégralité, l'utilisateur citera de manière complète les sources telles que mentionnées ci-dessus. Toute utilisation non explicitement autorisée ci-avant (telle que par exemple, la modification du document ou son résumé) nécessite l'autorisation préalable et expresse des auteurs ou de leurs ayants droit. Does the hype surrounding FinTechs lead to an overvaluation of their stock prices? Focus on the Payment sub-sector Jury Dissertation by Promoter : Catherine Lebailly Georges HÜBNER Readers : For a degree in Economics and Finance Lionel ARTIGE Axel GAUTIER Academic year 2016-2017 Executive Summary This thesis aims to bring its contribution to the academic literature about the financial technology sector, recently referred as “FinTech”. More precisely it attempts to detect whether the recent hype surrounding FinTechs has an influence on their stock prices. Firstly, a valuation through a DCF model of FinTechs operating in the payment industry allows to highlight an overvaluation of the Payment FinTech sub-sector. Secondly, various hypothesis tests demonstrate that the overvaluation is significant. Thirdly, the regression of a stock index built from the firms’ sample on the hype surrounding the whole sector proves that a greater level of hype leads to a rise in the Payment FinTechs’ stock prices. These results are considered as evidence of a possible formation of a bubble in the FinTech sector. These findings are supported by the substantial rise in FinTechs’ investments and by the unusual attention from the public towards the sector. This phenomenon is somewhat reminiscent of the high-tech bubble that emerged during the last years of the 20th century. Ce mémoire aspire à contribuer à la littérature académique portant sur le secteur de la technologie financière récemment renommé « FinTech ». Il essaye plus précisément de détecter un potentiel impact de la récente frénésie entourant les FinTechs sur le prix de leurs actions. Premièrement, une évaluation de plusieurs entreprises opérant dans l’industrie du paiement via un modèle d’actualisation des flux de trésorerie permet de mettre en lumière une surévaluation du sous- secteur des FinTechs de paiement. Deuxièmement, plusieurs tests d’hypothèse démontrent que la surévaluation est substantielle. Troisièmement, la régression d’un indice boursier basé sur les entreprises composant l’échantillon sur l’engouement entourant le secteur prouve qu’un plus haut niveau de ce dernier mène à une hausse des prix des actions des FinTechs de paiement. Ces résultats sont considérés comme des preuves d’une possible formation d’une bulle dans le secteur en question. Ces constats sont également supportés par une augmentation substantielle des investissements dans les FinTechs et d’une attention inhabituelle de la part du public vers ce secteur. Ce phénomène n’est pas sans rappeler la bulle high-tech ayant émergée à la fin du vingtième siècle. i Acknowledgements First and foremost, I would like to thank my promoter, Georges Hübner for his valuable advice. Secondly, my gratitude goes to the readers of this thesis, Axel Gauthier and Lionel Artige for their interest. Thirdly, I would like to thank all people that helped me directly and indirectly to elaborate this thesis. Special thanks to the team in which I evolved in during my internship at Deloitte Luxembourg, which helped me in various ways. Finally, I wish to thank my parents that always have been a significant support during my studies. I could not have achieved anything without them. ii Table of Contents 1. Introduction ................................................................................................................................... i 1.1. Context .....................................................................................................................................1 1.2. FinTech Sector .........................................................................................................................2 1.3. FinTech in the Payment Industry .............................................................................................4 1.4. FinTech’s Hype ........................................................................................................................6 2. Research Question .........................................................................................................................9 2.1. Research Question ....................................................................................................................9 2.2. Hypotheses .............................................................................................................................10 3. Data and Methodology ................................................................................................................12 3.1. FinTechs’ Valuation ...............................................................................................................12 3.1.1. Methodology ..................................................................................................................12 3.1.1.1. Valuation Process ...................................................................................................14 3.1.1.2. Assumptions ...........................................................................................................14 3.1.1.3. Operating Income Adjustments ..............................................................................16 3.1.1.4. Firm’s Equity Value ...............................................................................................16 3.1.2. Data ................................................................................................................................19 3.1.2.1. Firms Selection .......................................................................................................19 3.1.2.2. Valuation Inputs .....................................................................................................19 3.1.2.3. Industry Data ..........................................................................................................20 3.2. Linear Regressions .................................................................................................................21 3.2.1. Methodology ..................................................................................................................21 3.2.2. Data ................................................................................................................................23 4. Results ...........................................................................................................................................24 4.1. FinTechs’ Valuation ...............................................................................................................24 4.2. Linear Regressions .................................................................................................................27 5. Discussion .....................................................................................................................................30 5.1. Limitations .............................................................................................................................30 5.2. Interpretation of the Results ...................................................................................................32 5.3. Is There a Bubble Emerging? .................................................................................................33 5.4. Economic Consequences ........................................................................................................36 6. Conclusion ....................................................................................................................................38 7. Bibliography .................................................................................................................................39 iii List of Figures Figure 1.1 – Evolution of Non-Cash Transactions ...................................................................................5 Figure 1.2 – Evolution of the Number of Google Searches for “FinTech” ..............................................6
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