The fintech (financial technology) industry is fast transforming the U.S. financial sector. Over recent years, the growth of fintech stocks has exploded with the evolution of digital payment-processing solutions. The coronavirus pandemic has further accelerated digital payments because consumers have been forced by lockdown requirements to rely on online transactions for payment networks, online lending, money transfers, business-to-business payments, personal finance, banking and more.
As societal dependence on fintech companies has increased their stocks have significantly outperformed. For example, ARK Fintech Innovation ETF (ARKF), which invests in several fintech areas, has gained more than 48.5% over the past six months, significantly outperforming SPDR S&P 500 ETF Trust’s (SPY) 19.3% returns.
The key factor driving the growth of the fintech market is high investments in technology-based solutions by banks and other financial institutions. In addition, infrastructure-based technology and APIs (application programming interface) are reshaping the future of fintech.
The behavioral changes induced by the pandemic, such as online shopping and cashless payments, are here to stay and will continue to propel fintech’s growth this year and beyond. So, we think stocks like PayPal Holdings, Inc. (PYPL – Get Rating), Square, Inc. (SQ – Get Rating) and Synchrony Financial (SYF – Get Rating) are well-positioned to hit new highs this year.
PYPL is one of the most popular digital payment operating technology platforms that enables digital and mobile payments on behalf of consumers and merchants worldwide. It has more than 361 million active users globally and is available in more than 200 markets around the world, enabling consumers and merchants to receive money in more than 100 currencies.
PUPL’s Venmo has recently introduced a new Cash a Check feature, that provides Venmo’s community with a quick, easy and secure way to cash paper checks. The new feature will allow select Venmo customers to cash printed, payroll and government checks directly from the Venmo app. In addition, as part of the second round of U.S. government-issued paper stimulus checks, PYPL has waived the check-cashing fees associated with its cash-a-check feature on PayPal and Venmo. This will allow its customers to access the funds remotely free-of-charge.
Over the past three years, PYPL’s revenue and EPS have grown at a CAGR of 18% and 27.5%, respectively. In the last reported quarter, PYPL added more than 15.2 million new accounts. Its top-line has increased 25% year-over-year to $5.46 billion. The company witnessed total payment volume (TPV) of $247 billion, growing 38% from the year-ago quarter. And its Merchant Services volume surged 40% and represented 93% of TPV. EPS for the third quarter came in at $0.86, rising 121% year-over-year.
PYPL gained 115.3% in 2020 based on an encouraging trajectory in domestic digital spending. The company has largely benefited from a spike in e-commerce sales amid the pandemic. This shift to digital payments is one of the major trends that should accelerate over the next couple of decades. Hence, analysts expect PYPL’s current year revenue and EPS to rise 18.6% and 19.2%, respectively.
How does PYPL stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Peer Grade
A for Industry Rank
A for Overall POWR Rating.
It is ranked #3 of 47 stocks in the Consumer Financial Services industry.
SQ develops and provides payment and point-of-sale solutions in the U.S. and internationally. It provides Square Register, a point-of-sale system that takes care of digital receipts, inventory, and sales reports, as well as providing analytics and feedback. In fact, SQ is the fastest growing fintech company in the U.S. in terms of digital wallet usage. SQ recently expanded into banking by securing FDIC approval to offer small business loans and consumer financial products on its Cash App platform.
SQ has recently partnered with POWDR, an adventure lifestyle company, to launch a commerce platform that will power payments, e-commerce, and point of sale transactions at renowned ski resorts across the U.S. and Canada. Also, SQ entered into a definitive agreement with Credit Karma last month to acquire its tax business, Credit Karma Tax, to provide a free, do-it-yourself tax filing service for consumers.
SQ has grown its revenue at a CAGR of 55% over the past three years. In the most recent quarter (the third), SQ’s net revenue climbed 140% year-over-year to $3 billion on the back of its Cash App ecosystem. The company delivered record gross profits of $794 million, rising 59% year-over-year. The gross payment volume on the Cash App platform was up 332% year-over-year to $2.9 billion. EPS for the quarter came in at $0.07 compared to the year-ago value of $0.06.
SQ returned more than 245% in 2020 and is arguably the best-known credit card acceptance solutions provider. The company has been efficiently leveraging relentless innovation allowing small companies to accelerate growth even against a challenging economic backdrop. Analysts expect SQ’s revenue and EPS to…
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