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Wirecard AG has strongly denied fraud allegations reported by the Financial Times last week. But that hasn’t stopped about $5.7 billion being wiped from the German fintech darling’s market value in a matter of days. Even if the allegations are as unfounded as the company says, there are valid questions about whether the payments processing specialist justifies its generous valuation. Hedge fund manager Crispin Odey, for one, made a large bet against the firm.
The FT’s reporting alleges that suspicious transactions in the millions of euros were flagged internally at Wirecard – which processed some 90 billion euros of payment volumes in the first nine months of 2018 – but with seemingly no resulting compliance action. It also alleges that a law firm hired by the company to investigate its Singapore office found evidence suggesting “serious offences†such as forgery or faked accounts.
While these are serious charges, it’s not the first time Wirecard has faced accounting allegations, and it has always denied any wrongdoing. Singapore police are looking into the latest claims.
But part of what makes investors so skittish is the amount of optimism baked into Wirecard, whose valuation was looking very stretched before its recent drop. A near-fourfold increase in its stock price over the past two years, before the FT reports, was driven by breakneck expansion, headily optimistic long-term forecasts and faith that the firm can become even more profitable despite operating in a fiercely competitive market.
Even now, the stock trades at about 30 times full-year earnings, giving it a market value of $17.5 billion. That multiple is higher than the sector average, which has its fair share of even pricier startups such as Dutch rival Adyen NV. A
reality check was always likely.
The company’s bullish targets have already raised eyebrows. It expects to lift annual sales five-fold to 10bn euros by 2025 and underlying earnings sixfold to 3.3bn euros.
Wirecard will no doubt offer up more detailed objections to the allegations, starting with an investor call. But the nuts and bolts of its payments business, and specifically its promises of heady growth, need explaining too.
Wirecard has successfully fought off accusations of wrongdoing in the past, and may do so again. But you don’t have to be Odey to think caution is justified.
—Bloomberg