The Mode (LSE:MODE) share price has been quite volatile since its IPO a few months ago, reaching as high as 75p from its issue price of 50p. Today it’s closer to 56p but still moving in an upward direction.
What does this business do? Can the Mode share price climb even higher over the long-term? And should I consider adding it to my portfolio? Let’s take a look.
A new payments solution
Mode is a fintech company. It has developed a new mobile payment app that enables users to instantly manage and accept payments while receiving small rewards for doing so. What’s more, these transactions don’t always have to be in traditional currencies. Cryptocurrency-based payments can also be completed in a similar fashion.Â
While Covid-19 has been a devastating event for many individuals worldwide, Mode indirectly benefits from the changes in consumer habits. According to the Bank of England, the use of cash throughout 2020 plummeted to record low levels. This could be due to fears of the virus being easily transmitted via banknotes and coins, or just the convenience of non-cash payments. Card and other digital contactless payments have become exceptionally popular in the UK today.
Needless to say, this creates quite a favourable environment for Mode as well as its share price. And as an investor who owns quite a few fintech stocks in my portfolio, this company does sound interesting.
Risks to consider
As exciting as a new payments processing platform is, there are quite a few risks to consider. The primary one is that there are already multiple existing payment platforms available that work in a similar fashion to Mode’s. However, a key differentiator is its loyalty feature that will launch in Q2 2021, where users are rewarded with Bitcoin over time. Whether this will be sufficient to attract and retain new users has yet to be seen.
What’s more, Mode appears to be exceptionally early in its business cycle. In the first six months of 2020, it generated a grand total of £29,000 in revenue. Hardly a groundbreaking figure. And due to expenses, the overall loss for the same period was £1.87m. Being unprofitable in the early days is not uncommon. But with limited cash on the balance sheet and some pretty hefty costs to cover, the firm will likely have to raise additional funding in the future, either through debt, share offers, or a mixture of both. Regardless, this will undoubtedly have an impact on the Mode share price.
The Mode Share price: time to buy?
Payment processors make money by charging small transaction fees. And so, by processing large payment volumes, these companies gain a consistent stream of cash flow. That’s why Mode sounds like an exciting business to me.
However, its platform remains unproven in my eyes. While it’s good to see revenue begin to materialise, it’s nowhere near high enough to justify the £50m market capitalisation. Therefore, I won’t be adding Mode to my portfolio at its current share price.