If you paid for anything online recently, you’ve undoubtedly engaged the services of a fintech company. While some companies such as PayPal (NASDAQ:PYPL) are fairly well-known, others operate more behind the scenes or are just starting to make their mark in public.
Financial technology services, or fintech, have been a growing investment category as many financial services related companies incorporate technology into their innovations. And since e-commerce requires a healthy relationship with financial institutions, fintech companies are in a good place to grow. While many other businesses are struggling against COVID-19 headwinds, fintech companies are finding more tailwinds.
PayPal, Q2 Holdings (NYSE:QTWO), and Axos Financial (NYSE:AX) are three examples of fintech companies that are seeing strong growth this month, and their prospects have been reinforced by their business plans, even in the time of COVID-19. Let’s take a closer look at these three fintech companies and what sets them apart.
A pioneer of fintech, PayPal pretty much created the industry when it came onto the scene as the original digital payment processor. But while some companies never get past their initial starting points (think BlackBerry), PayPal has led the competition as it continues to forge new relationships and acquire complementary brands that serve its broader goals. Through acquisitions, PayPal has increased its size, strength, and potential, making it a formidable opponent for any company in the digital payment space.
PayPal’s 2020 first-quarter earnings report demonstrated the company’s ongoing ability to grow by double-digit percentages year over year, with 13% currency-neutral revenue growth, an increase of 10 million net new active users (now totaling 325 million), and a 19% increase in total payment volume. PayPal continues to make strategic partnerships with retailers and financial institutions to give customers digital payment options, and it was recently approved by the U.S. government as one of the only non-banks permitted to disburse small business loans as part of the Paycheck Protection Program.
As e-commerce becomes more widely used (as evidenced by recent pandemic consumer behaviors), PayPal is poised to benefit from the trend. With $1.3 billion in free cash flow and $12.6 billion in cash, cash equivalents, and investments, PayPal has the funds to invest in further initiatives and grow its dominance, and it expects further double-digit revenue growth in the second quarter. While the stock is pricey and approaching 52-week-high levels, it’s likely to continue growing along with the company for years to come.
2. Q2 Holdings
Q2 Holdings is a software company that provides secure, cloud-based virtual banking solutions for small banks and fintech companies. It services a cozy niche in an otherwise large industry with lots of opportunity for growth.
Q2 revenue grows by double-digit percentages every quarter, and it continued this streak into the first quarter of 2020, with $92.4 million in revenue, up 30% from the year before. It also added 800,000 new users in the quarter, an 18% increase from the prior year, to bring its active user total to 15.4 million.
CEO Matt Flake explained that the COVID-19 pandemic has shown banks and other financial services firms that much of the back-end of traditional banking is still technologically behind. As a result, there is and there will be a strong push to modernize and digitize more banking operations. That puts Q2 in a great position going forward.
The company provided second-quarter guidance of $94 million to $96 million in non-GAAP revenue, which would represent a 21% to 24% increase year over year. It revised down its full-year non-GAAP revenue guidance from $414 million down to $396.5 million at the midpoint of its range, which still represents a 25% year over year growth rate.
Although Q2’s share price fell along with most stocks at the start of the pandemic and has been somewhat volatile since then, it’s trading roughly flat for the year overall (compared to a 9.6% decline for the broader market), and now might be a good time to take a position in the stock.
3. Axos Financial
Axos is one of the many digital banks that have formed in recent years, offering customers the advantages of low or no fees on banking services and simplified banking. The cons of these banking companies are…
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