trending Market Intelligence /marketintelligence/en/news-insights/trending/1q6CIlxCgZNzV3rS7We_dA2 content esgSubNav
In This List

Acorns' AUM growth thesis looking good following PayPal pact

Blog

Volume of Investment Research Reports on Inflation Increased in Q4 2021

Blog

Price wars in India: Disney+ Hotstar vs. Amazon Prime Video vs. Netflix

Blog

Using ESG Analysis to Support a Sustainable Future

Podcast

Next in Tech | Episode 48: The everything that is Industrial IoT


Acorns' AUM growth thesis looking good following PayPal pact

While our growth projections for Acorns Advisers LLC might have seemed ambitious back in July, news of a partnership with PayPal Holdings Inc. should help the robo-adviser meet — if not exceed — them.

The two companies announced a pilot program Nov. 20, which allows select U.S. PayPal customers to sign up for Acorns within PayPal. The full rollout, for all U.S. users, is slated for early 2018.

This looks like a big win for Acorns in terms of customer acquisition. Acorns had already been making headway on that front, going from 1.1 million accounts at the end of 2016 to roughly 2.4 million as of Nov. 20. But the increased visibility that PayPal brings, with over 218 million active accounts, should provide a significant boost.

SNL Image

S&P Global Market Intelligence's 2017 mobile payments survey helps to illustrate PayPal's popularity. It was the most popular merchant-agnostic payment option for in-store transactions, based on survey responses, and its One Touch service was the second-most popular payment app for an online or in-app purchase, behind Amazon.com Inc.'s 1-Click Ordering.

Back in July, when we created a digital investment manager industry forecast, we estimated that Acorns would end 2017 with close to $430 million in assets under management, which was about 67% higher than the $257 million it had at the end of 2016. We based this on the median growth rates that other similarly sized robo-advisers had observed at that point in their company's life cycle.

SNL Image

But judging by Acorn's quarterly 13F filings, this looks to be modest. As of Sept. 30, the value of its exchange-traded fund holdings were already past that, at $545.2 million. Some of this is due to market appreciation. Its largest holding, the Vanguard S&P 500 ETF, was up 12.4% from Dec. 30, 2016, to Sept. 29, 2017. But that does not tell the whole story. Acorns more than quadrupled the number of shares it held of that ETF over the same time frame.

Based on the total portfolio values reported in the 13F filings, and assuming a linear trendline, Acorns is on pace for more than $670 million in AUM by the end of 2017. The ultimate number will likely be higher as well, since the 13F portfolio value for year-end 2016 ($203.9 million) undershot the reported AUM figure in the company's ADV filing ($257 million).

The average account size (AUM divided by number of accounts) at Acorns was around $230 at the end of 2016; while this might seem small, it makes sense in the context of Acorns' focus on microinvesting. One of the signature services that Acorns offers is known as a "round-up." Customers link their credit or debit cards to the app, and when they pay for purchases, the app rounds up the bill to the nearest dollar and invests the difference. While we have not seen what the integration with PayPal looks like from a product perspective, the transaction-focused nature of the Acorns app would seem to be a good fit.

Of course, PayPal also has a monetary interest in Acorns succeeding. In April 2016, Acorns announced a $30 million financing round that included a strategic investment from PayPal.

Assuming the PayPal partnership does go well, this helps support our thesis that AUM will continue to soar for Acorns in the coming years. Based on the results of companies like Betterment LLC and Wealthfront Inc., AUM growth was strong at this point in the cycle for them, as they continued to innovate and gain more publicity. Betterment went from $406.4 million in 2013 to $1.71 billion in 2014, and Wealthfront grew from $378.0 million to $1.55 billion that same year.

The Acorns/PayPal agreement also underscores one of the themes of our original report: Startups seeking partnerships with large companies. At the time, we mentioned how SigFig Wealth Management LLC had announced agreements with units of Wells Fargo & Co. and UBS Group AG, helping them to create their own digital investment tools.