Starling Bank's potential IPO: pros, cons, and impressive growth

Starling, the London-based digital bank, has emerged as one of the leading contenders among the top four UK firms expected to conduct IPOs in 2023. Boasting an impressive suite of offerings, including mobile commercial banking services, same-day payment services, and real-time spending intelligence, Starling has established itself as a major player in the digital banking sector. As the IPO market heats up, investors are keeping a close eye on Starling's progress, with many eagerly anticipating the bank's public debut.

A Fintech Unicorn with impressive growth

Founded in 2014 by acclaimed British entrepreneur Anne Boden, Starling has emerged as a rare unicorn in the fintech industry. Boden, who previously held senior positions at Lloyds Bank, has successfully created a digital bank that has no physical branches but is accessible primarily via its mobile app and website.

Starling's business model has proven highly lucrative, generating revenue through a combination of subscriptions, interest payments, interchange fees, and other charges such as transfers, overdrafts, referrals, and licensing.

Since its launch, the digital bank has opened over two million accounts, including more than 300,000 small business accounts. With total gross lending exceeding £2 billion and deposits topping £5.4 billion, Starling has quickly established itself as a major player in the UK banking sector.

Notably, Starling has received numerous industry accolades, including the Best British Bank award at the Smart Money People's Best British Bank Awards in 2018, and The Which? Banking Brand of the Year in both 2021 and 2022.

In a recent move, Starling announced the opening of a new office in Manchester, with the aim of creating over 1,000 jobs in the region. As the company continues to expand its reach and offerings, it’ll be interesting to see how it fares in the competitive fintech landscape.

Starling Bank eyes IPO as profitability and valuation soar

In a significant development for Starling, the digital bank reported a first full year of profitability in 2022, with a pre-tax profit of £32.1 million. While the company has not ruled out the possibility of an IPO in 2023, it’s stated that it’s not in immediate need of capital, according to UK tech News.

With high-profile investors such as Goldman Sachs, Fidelity Management & Research Company, and the Qatar Investment Authority backing it, Starling has successfully raised £130.5 million to build a war chest for acquisitions. This has helped the company double its valuation to over £2.5 billion, as reported by the Financial Times

If Starling does proceed with an IPO, it could take place on the London Stock Exchange, the default option for UK-based companies. As the company continues to strengthen its position in the digital banking sector, investors and industry experts alike will be closely monitoring its progress, especially in light of the potential public offering.

The pros and cons of going public

The process of going public involves several key steps, including the hiring of investment banks to underwrite the offering and the filing of a registration statement with the SEC. Once the SEC approves the registration statement, the company can set the IPO price and begin marketing the shares to potential investors, a process that can take several weeks and may include roadshows to present to institutional investors.

On the day of the IPO, the shares are priced and allocated to investors. The first day of trading is often closely watched as an indication of the success of the offering, but the success can depend on a variety of factors such as market conditions, investor sentiment, and the quality of the company's financials and business model. Companies that are profitable and have a clear path to growth may be more attractive to investors.

It's important to note, however, that the first day of trading success is not a guarantee, and the share price can fluctuate significantly in the days and weeks following the IPO. Some companies may experience a "pop" on the first day of trading, with share prices significantly jumping above the IPO price before eventually falling back down.

As for the potential Starling Bank IPO, it’s difficult to estimate the first day trading success without access to real-time market data and technical analysis tools. However, if the company is profitable and has a strong business model, it may be more attractive to investors, potentially leading to a successful IPO.

The decision to go public in stocks can have a profound impact on a company's fortunes, with both positive and negative consequences. Perhaps the most significant advantage of going public is access to a large pool of capital, as investors are able to purchase shares in the company, providing funds for expansion and growth. Furthermore, going public can increase a company's profile and prestige, and potentially attract new customers and partnerships.

However, the decision to go public also adds increased regulatory and reporting requirements, which can be costly and time-consuming. Publicly traded companies face greater scrutiny from investors, analysts, and regulators, which can raise the pressure to deliver consistent and robust financial performance. Additionally, public companies face the risk of stock price volatility, with market conditions and investor sentiment contributing to fluctuating stock prices.

In summary, going public can represent a major milestone for a company, but it requires careful deliberation and planning to ensure that the benefits outweigh the potential drawbacks.