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Key Takeaways:
Hong Kong IPO candidate Extransfer reported an eye-popping $483.5 million net loss last year largely due to non-operational factors related to IFRS accounting rules
The business payments company's gross margin of more than 90% and fast revenue growth stand out from other fintech ventures, many of whose operations are losing money
On paper, at least, Extransfer Ltd. is a bit of a victim of its own success. As it seeks to go public, the fintech company's management must be hoping investors see through this irony created by accounting rules that make it appear to be a massive money-loser.
Last Friday, Extransfer, which provides cross-border trade payment services under the XTransfer brand, filed for a Hong Kong IPO. At first glance, the company appears to be a typical, fast-expanding tech business. Founded in 2017 by a team of veterans from Ant Group and Visa, the enterprise boasts a trajectory that is, on the surface, solid but unremarkable for its sector. What makes Extransfer stand out is its eye-popping gross profit margin that exceeds 90%, which reflects extremely low costs the company incurs to provide its services. Yet, despite that extraordinary feat, the company is deeply in the red.
Its huge loss is less a sign of operational failure and more the result of what essentially is an accounting penalty for strong growth. Because Extratransfer has been so effective at raising capital and boosting its valuation, which hit about $3 billion in its latest funding round in March, triple the amount in 2021, it has fallen into an accounting trap under IFRS rules.
As part of their investment in the company, Extratransfer issued convertible preferred shares to private backers including Alibaba and China Merchants Venture. Under IFRS standards, these instruments are treated as liabilities that must be regularly updated to reflect their latest market value. As the startup's valuation rises, the value of those liabilities increases, eroding the company's bottom line. Extransfer booked a $524 million valuation loss for the preferred securities last year, up from $162 million in ...
