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Revolut chief executive Nik Storonsky started his career as an equity derivatives trader, a business that was built on the idea of making bets with limited downside and potentially massive pay-offs. Investors offering him a multibillion-dollar bonus if he can turn his UK challenger bank into a giant are making a similar calculation.
Storonsky is in line to receive shares worth up to 10 per cent of the company if he hits targets including bringing Revolut to a valuation of about $150bn, the Financial Times reported this week. A $15bn payout raises echoes of Elon Musk’s lavish bonus at Tesla, and prompts two questions: is it reasonable, and is it realistic?
On one hand, the targets are so ambitious that, should Revolut hit them, shareholders would have benefited by far more than the cost of the payout. The same case was made for Musk’s contentious $56bn pay award in 2018, but the fact Revolut is private should reduce the risk of rogue shareholders raising complaints as happened to Musk.
As for whether it’s attainable, that’s less clear. The headline target would put Revolut around the same market capitalisation as Citigroup — one of the few retail banks with the sort of international business Revolut wants. Against that benchmark, the goal seems delusional. Citi trades at 12 times its earnings over the past 12 months. Revolut, at the same valuation, would need to increase net profit by about 1,100 per cent. Alternatively, to match Citi’s price-to-book ratio it would need to grow its net assets by 5,600 per cent.
Storonsky probably has racier peers in mind. A fairer comparison might be the digital trading wiz Robinhood Markets or Latin American digital lender Nubank. On a Robinhood-like multiple of 44 times last year’s earnings, Revolut’s net income would only need to triple to meet the $150bn valuation.
That’s still ambitious, but then so is Revolut’s founder. When an injection of new funding made the company Britain’s most valuable fintech in 2020, his first instinct was to complain that the deal wasn’t good enough. If Revolut maintained last year’s growth rate, and traded at Nubank’s less generous 28 times trailing earnings, it would be worth $150bn in two years. That trajectory may depend on the continued popularity of cryptocurrencies, which were a major factor in last year’s growth surge.
The Musk comparison is apt in one significant way. Tesla’s valuation is as much about Musk’s moonshot plans, and investors’ continuing belief in his ability to execute them, as its actual car manufacturing business. Likewise, even if the crypto boost fades, Revolut’s backers are betting on Storonsky’s long-held dreams to turn Revolut into a “superapp” with businesses in everything from telecoms to car rental.
Storonsky once said the key to growth was to “strive for huge goals which seem like they’re low probability”. Right now, a $15bn bonus seems like one-such low probability goal. But then so did Musk’s in 2018. Stranger things have happened.