One of this year's most anticipated IPOs hit the market last week. Demand was strong for Chime's (CHYM 5.81%) offering. Underwriters were hoping to take the online banking specialist public between $24 and $26 a share, and they pushed it up to $27 on the eve of its exchange-traded debut.
Chime stock opened at $43 when it eventually began trading three hours after Thursday's opening bell. But it went largely downhill from there. The shares closed at $37.11 on its first day of trading and then slid another 6% on Friday.
Is it too late to buy Chime? No. The stock is still 29% above the underwriters' $27, but the shares enter this new trading week fetching less than what those who chased it during its first two days on the market had to shell out.
There's a lot more to the Chime story than its limited post-IPO history. Let's see if it can ring a bell.
Chime operates a growing fintech platform. As a branchless bank, or neobank, Chime offers online and mobile app access to basic banking services, including checking, high-yield savings, and debit cards. Unlike traditional brick-and-mortar institutions, Chime sweetens the pot with no account minimum fees and complimentary overdraft protection. Set up a direct deposit, and you can generate a healthy 3.75% yield on the idle cash in your savings account.
The appeal is clear. The company's target audience is currently the 196 million Americans generating less than $100,000 annually, and it currently has less than 3% of that market penetrated among its 8.6 million active customers. This is a group that can sometimes live paycheck to paycheck, and Chime has lots of things that make it attractive to a widening user base, including a compelling fee schedule, flexibility, and the MyPay program that can advance up to $500 from an incoming direct deposit at no cost if it hits the account within 24 hours. Two-thirds of Chime users consider Chime their primary banking account.
Chime hit the market at a good time. Revenue growth is accelerating. Its top line rose 27% in 2023 and stepped up to 31% growth last year. The top line came through with a 32% year-over-year increase in the first quarter of this year. The 8.6 million accounts the company currently services is a 23% jump over the past year and 82% over the past three years.
Engagement is strong. Customers on average adopt 3.3 of Chime's product offerings. Average revenue per active account clocked in at $251 during the first three months of this year, and the average number of transactions was 54. Chime isn't yet a player for high rollers, but it still facilitated $121 billion in transactions over the past year.
Image source: Getty Images.
Banking on growth
Thursday's trading high wasn't Chime's peak valuation. A couple of years ago, it closed on a private financing round that valued the upstart at $25 billion. Today's market cap is a little more than half that haul.
Chime is getting better. Its annual losses narrowed last year, and it broke through with an operating profit for all of 2024. Actual profitability has been harder to come by, but it did get there in the first quarter of this year.
The stock isn't cheap compared with many of the existing fintech leaders, even after the recent pullback from its initial pop on Thursday. Its revenue multiple north of 7 is well ahead of larger neobank SoFi (SOFI 5.78%) at 5.6. SoFi just turned profitable, and it's also been growing its business north of 20% for the past few years. Block (XYZ 5.28%) and PayPal (PYPL 1.91%) are less of a match to the Chime model. They're growing a lot more slowly, though they are profitable and trading at even lower multiples.
Chime doesn't look cheap, but momentum is on its side. Growth is accelerating, and just the publicity surrounding its IPO this month should bring even more attention to the digital banking platform. Chime also believes that its product can eventually target even more affluent Americans, opening the door to even larger revenue per account and expanded product offerings. This can be a cutthroat market, but Chime is standing out at the right time. If it's able to keep growing its customer base and engagement, today's lofty valuation may seem like a bargain in the future.
