According to a recent Global Market Insights report, the global digital banking market is estimated to grow at 6% CAGR to $12 trillion by 2026 from $8 trillion in 2019. Total global digital payment transactions exceeded 750 billion in volume in 2019 and accounted for over $700 trillion. The current pandemic conditions have accelerated the need for digital banking among end consumers including commercial customers. Austin-based Q2 Holdings (NYSE: QTWO), a leading cloud-based banking solution provider for regional financial institutions, recently reported its quarterly results and saw its stock soar to 52-week high levels.  

Q2 Holdings’ Financials

Q2 Holdings’ third-quarter revenues grew 30% to $103.8 million, surpassing analyst estimates of $102.91 million. GAAP net loss was $26.7 million. Non-GAAP net income was $0.07 per share, beating analyst estimates of $0.06.

It witnessed a strong growth among its client base. It exited the quarter with 17.1 million registered users on the Q2 platform, representing a 21% y-o-y growth and 5% q-o-q growth.

For the fourth quarter, Q2 Holdings expects to achieve a growth of 18% to 21% and non-GAAP revenue of $105 to $107 million. For 2020, it expects non-GAAP revenue in the range of $402.5 to $404.5 million, which would represent y-o-y growth of 27%.

Q2 Holdings’ Product Upgrades

During the quarter, the company launched a new solution called Treasury Onboarding. Q2 Holdings realizes that there is a big opportunity in the digitization of the onboarding of customers, especially on the commercial side. At present, onboarding of a new client requires greater documentation, and commercial financial institutions rely on a combination of paper-based processes and legacy technologies that need to be integrated to onboard a new commercial client. This paper-intensive process can take as much as 30 days for some organizations. Besides being manually intensive, the onboarding experience also causes a lot of angst among new commercial clients.

To address this problem, Treasury Onboarding integrates key components of Q2 Holdings’ commercial digital banking offering with elements of its account opening and lending solutions. The new solution thus offers an end-to-end commercial enrollment tool that has materially improved the onboarding process. It digitizes both the back-end and customer-facing processes and replaces multiple technologies and manual processes.

Q2 Holdings’ Acquisitions

Early this year, we had classified Q2 Holdings as an interesting FinTech stock to look out for, primarily due to its high revenue growth rate of around 30% and its transformative acquisition of PrecisionLender.

Based in Charlotte, North Carolina, PrecisionLender was one of the fastest-growing enterprise SaaS providers of data-driven sales enablement, pricing, and portfolio management solutions for financial institutions globally. The acquisition of PrecisionLender has enhanced Q2’s capabilities in designing, delivering, and operating complex, end-to-end digital banking transformation solutions. You can read about its bootstrapping journey including how it formulated an AI agent Andi in our Entrepreneur Journeys series. PrecisionLender was acquired for $510 million in November 2019.

The market is pleased with Q2 Holdings. Its stock is trading at $123.95 with a market cap of $6.7 billion. It hit a 52-week high of $124.62 last week and a 52-week low of $47.17 in March following the Covid-19 crash. It was founded in 2004 and had raised $41.2 million in funding before going public in 2014. Its competitors include Fiserv, Jack Henry & Associates, Fidelity National Information Services, Digital Insight, First Data, and ACI Worldwide.