Everything you need to know about Acorns

When is the Acorns IPO?

Acorns Grow has agreed to merge with a blank-cheque company named Pioneer Merger Corp in a deal that should be completed sometime in the second half of 2021.

When completed, the new combined business will be named Acorns Holdings and trade on the Nasdaq under the ticker ‘OAKS’. The deal needs to be approved by shareholders in both businesses and by regulators.

Agreeing to list by merging with Pioneer, a Special Purpose Acquisition Vehicle (SPAC) that is already publicly-traded, means this is not a traditional IPO. SPACs are essentially cash shells that raise money from investors and then buy an existing business to take it public. The funds raised by the SPAC is then funnelled through to the business it buys, which it typically uses to fuel further growth.

Acorns share price: how much is Acorns worth?

The transaction will value Acorns at $2.2 billion and leave the business with over $450 million in cash upon closing.

Notably, a number of big names back Acorns, including BlackRock, PayPal and Comcast. The existing owners of Acorns, including its management, will hold a majority stake in the business upon completion.

The chief executive of Acorns, Noah Kerner, is donating 10% of his personal shares in the business to fund a new programme that will dish out stock in the business for free to eligible customers. One of the sponsors is also contributing 10% of their stake towards the plan.

What is Acorns?

Acorns was launched in late 2014 and is an app-based service that provides a multitude of tools that help people manage their money over the long-term. At its heart, it is a savings and investment app, but it combines a number of elements such as education, banking and the ability to conduct transactions to engage users.

The company follows a mission to look after the financial interests of its 4 million-plus subscribers in the US, and has a slogan of ‘from tiny acorns mighty oaks do grow’. It is particularly popular with younger consumers and boasts famous brand ambassadors and celebrity investors like Dwayne ‘The Rock’ Johnson and singer Jennifer Lopez.

The customer’s journey starts by depositing funds into the Acorns app, whether that is a one-off payment, via a new monthly debit or even straight out of their paycheque. Recurring payments are the most popular form of deposit. Acorns then allocates the money into a variety of products to help users save and invest as much as possible over the long-term.

The idea is that this simple process means users can make the most out of the spare cash they have by putting it into a low-cost and diversified portfolio of exchange-traded funds (ETFs). There are nine portfolios of ETFs that have all been designed with the help of Nobel laureate economist Harry Markowitz.

Importantly, Acorns owns its technology platforms and says, unlike many other fintech firms, that it doesn’t rely on several third-parties to offer its service. It says that this not only improves margins and service but also means it has control over development.

It also has an insight into the wider spending habits of its users that decide to link up their bank accounts with their Acorns app. One interesting insight is that very few of its customers use other services in the market. For example, the most overlap is with trading app Robinhood but only 8% of its users also use this service.

How does Acorns make money?

Acorns is pioneering the subscription model in the fintech space. Users pay a monthly subscription fee in order to maintain access to the app, which has resulted in an extremely low churn rate (with a retention rate of over 98%) and a steady, transparent, recurring revenue stream.

Almost 80% of its revenue comes from subscription fees from its 4 million users. That makes it the largest subscription service in US financial services and means it has more paying subscribers than the likes of Peloton, the Washington Post or the Wall Street Journal. It believes it will be one of the biggest subscription businesses in general as it implements its growth strategy.

It is worth noting that the average age of subscribers is just 34 and that around 60% of them are first-time investors.

There are different tiers of subscriptions to cater to all users. Individuals can choose from a $1 per month Lite subscription to access basic education and earning tools or a $3 tier to access other services like retirement and banking tools. It also offers Family subscriptions for $5 per month considering half of its customers are parents.

The other 20% of revenue comes from customers conducting transactions with third parties through the Acorns app, using their debit cards and from its AI tool Harvest that helps negotiate lower bank fees for customers.

Notably, whilst subscription revenue drives the business, Acorns is expecting transactional revenue to outpace subscription income going forward.

This means income is determined by the number of subscribers it has and the amount they are saving, investing or spending through the service.

Is Acorns profitable?

Acorns is not profitable at present and falls into the category of a fast-growing but loss-making business.

Revenue rose 61% in 2020 and that is expected to accelerate this year, with Acorns forecasting over 77% annual growth. It has already revealed that it exited March 2021 with an annual revenue run-rate of $112 million.

Acorns is aiming to deliver over 20% revenue growth and an Ebitda margin of around 20% over the long-term, although both should perform much better than that over the coming years.

Although Acorns boasts a gross margin of over 80%, mainly thanks to its ownership of its tech, it ultimately remains in the red and expects to stay there for years to come.  

What is the strategy of Acorns?

Acorns hopes going public can not only improve brand awareness but provide the cash it needs to fuel further growth. It is currently aiming to have 4.6 million subscribers by the end of 2021, over 8 million by 2023 and 10 million by 2025.

The opportunity in the US alone is still huge. Acorns claims only 1% of Americans that need financial help have access to it and that over 70% don’t have over $1,000 in savings. But the company is obviously eyeing new markets and geographies too, giving it plenty of scope to grow.

The immediate priority is to grow subscribers and retain users. It hopes the addition of new products and tiers will help drive that. For example, it is planning to introduce a new $5 tier for individuals and a $10 family tier, which should also help drive higher Average Revenue Per User (ARPU) – a key metric for any subscription-based business. Acorns is currently working toward a target of achieving ARPU of $42 in 2023 from around $30 at present. Over the longer-term, Acorns believes it can achieve ARPU of $138.

In the near-term, it is set to launch new portfolios targeting Environmental, Social and Governance (ESG) investors, the ability to customise portfolios and new smart banking tools.

The fact it owns its technology demonstrates the ability to develop new products in-house, but Acorns plans to use M&A to scale-up and diversify its services. It has bought three companies since inception and two of them have been purchased since the start of 2021. The first was Harvest, an AI-powered platform that negotiates lower bank fees, and the second was Pillar, a student loan repayment platform.

‘A big part of why we’re going public is to continue this momentum and to that end, we’re currently talking to consumer fintechs of all sizes,’ Acorns said.

Acorns board of directors

The Acorns board will continue to be led by the company’s founder Noah Kenner after the listing and he will hold the role of chief executive. He will be supported by an experienced team that includes the like of chief operating officer and chief financial officer Jasmine Lee, who previously held the same roles at the consumer products division of PayPal, and chief business officer Manning Field, who spent 18 years at JPMorgan Chase and launched a number of programmes and products including Chase Sapphire and Chase Ultimate Rewards.

The full Acorns management team can be found below:

• Chief Executive – Noah Kerner
• Chief Business Officer – Manning Field
• Chief Operating Officer and Chief Financial Officer – Jasmine Lee
• Chief Technology Officer – Hugh Tamassia
• Chief Community Officer – Kevin Hooks
• Chief Marketing Officer – James Moorhead
• Chief Education Officer – Jennifer Barrett
• VP of Human Resources – Patricia Gonzales
• Chief Communications Officer – Jessica Schaefer
• VP of Engineering – Hasrat Godil
• Chief Brand Officer – Kennedy Reynolds
• Chief Compliance Officer – Katie Makstenieks
• Chief Legal Officer – Ashley Good
• Chief Data Officer – Pete Johnson
• Chief Information Security Officer – Imad Banna
• Head of Business Development – Babak Farrokh-Siar

How to trade top stocks

You can read about more potential IPOs to watch out for here ahead of Acorns going public.

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