Fintech has had a rough 2022, but the sector is set to rise next year.
Financial technology, or fintech, stocks have significantly underperformed in 2022. As a group, these stocks lag behind the S&P 500, which is off 14.4% on a year-to-date basis through Dec. 2. Compare that to popular fintech exchange-traded fund ARK Fintech Innovation ETF (ticker: ARKF), which slid 59.5% in that period. While fintech investors may be tempted to flip the calendar and move on, Wellington Management analyst Matt Ross notes that the fintech sector will likely rebound in 2023, offering investors an opportunity to pick fintech stocks on the cheap. Given that scenario, these seven fintech stocks are worth a closer look.
Block Inc. (SQ)
Block’s share price is down a whopping 57.8% in 2022 through Dec. 2, but it picked up steam in November and rewarded resilient shareholders with a 17.2% return in the month. While the bloom had fallen off the rose for Block, the underlying issues fueling that decline – high inflation, high interest rates and slow supply chains – are all showing signs of recovery. Meanwhile, the company reported better-than-expected third-quarter performance in earnings released in early November, highlighted by a year-over-year gross profit boost of 36% and a 17% year-over-year revenue upgrade. Additionally, its twin ecosystem pillars Cash App and Square generated a 51% and 29% rise in gross profits, respectively. Given the rise in contactless payment usage and the company’s continued expansion into the U.K., Australia, Canada and France, investors should anticipate a smoother ride with Block in 2023.
PayPal Holdings Inc. (PYPL)
PayPal stock has dipped significantly in 2022, with the digital payments giant falling 60.4% through Dec. 2. Part of the problem is rising competition, especially with Apple Inc.’s (AAPL) ascent in the financial payments space, growing at a 52% clip worldwide and 59% in the U.S. in the last year. Deutsche Bank analyst Bryan Keane cites Apple’s payment run-up as “extremely rapid” in a recent research note. PayPal’s growth rate during the same period has stalled at 8% worldwide and 4% in the U.S. Yet PayPal still owns 16% of the global payments market compared to Apple’s 5%. As Keane notes, PayPal’s stock has been hung out to dry by investors who’ve largely avoided technology securities, and that’s a trend that likely won’t continue as the economy improves and inflation and interest rates are tamped down. Additionally, PayPal’s Venmo app is on Amazon.com Inc.’s (AMZN) shopping platform, which should help drive share growth as it signals PayPal’s ascending position in the lucrative “buy now, pay later” e-commerce space.
Toast Inc. (TOST)
Toast specializes in cloud solutions for the restaurant sector, and it’s shared some of the restaurant sector’s misery as lockdowns cost eateries billions in 2020 and 2021. That’s one big reason why 2022 has been a hangover year for TOST, with the stock down 48.2% through Dec. 2. The company is starting to turn around, however, with third-quarter, year-over-year revenues showing a revenue boost of 55% to $752 million, while adjusted net losses are down to $98 million compared with $254 million last year. Toast’s management also upgraded its outlook with fourth-quarter revenue forecast of between $730 million and $760 million against a consensus analyst outlook of $725 million. Analysts have taken notice, with Needham’s Mayank Tandon upgrading the analyst firm’s target price call from $27 to $32. “We continue to be impressed with the strong sales execution in the midst of an uncertain macro backdrop as management continues to chip away at the massive market opportunity,” Needham stated in a recent research note.
Intuit Inc. (INTU)
Intuit recently released performance figures for the three-month period ended Oct. 31. In the release, the tax software behemoth reported revenue growth of 29% to $2.6 billion, which bettered analyst expectations of $2.5 billion. Earnings-per-share growth was stellar, at 14 cents per share, which easily surpassed management’s outlook. That’s good news for shareholders, who saw the share price rise by 3.3% in November. Jeffries has taken notice, maintaining its “buy” call, although the analyst curbed its share price outlook from $575 to $525. Meanwhile, the consensus analyst call on INTU is a “strong buy” along with a $477.61 average price target for the stock, which closed at $407.92 on Dec. 2.
SoFi Technologies Inc. (SOFI)
SoFi’s stock has followed the industry trend and nose-dived 70.3% in 2022 as of Dec. 2. What the company does have going for it is its recent purchase of Golden Pacific Bancorp and its highly useful bank charter. Now, SoFi can call itself a legitimate bank that can issue loans and provide deposit services, which it formerly had to outsource to third-party financial institutions. That means regular fat interest payments along with the ability to hold and sell loans to outside investors. MoffettNathanson fintech analyst Eugene Simuni likes what he sees in SoFi these days, especially with its increasingly profitable personal loan business. “The success of the firm’s Personal Loan franchise has allowed SoFi to consistently beat consensus expectations, despite mixed performance in the rest of the portfolio,” Simuni said in a research note. “In 3Q, however, another part of SoFi’s franchise delivered an even bigger positive surprise.” That surprise came from the company’s digital banking business, which had a 65% quarter-over-quarter revenue increase.
Amazon.com Inc. (AMZN)
You can’t call Amazon a pure fintech company – not when it earns its bread and butter as a cloud services company. AMZN does, however, partner up with financial technology companies on an expanding basis. A case in point: Amazon’s partnership with Affirm Holdings Inc. (AFRM) provides a clear path to the increasingly lucrative “buy now, pay later” online payment sector. BNPL is expected to grow from $22.9 billion to $90.5 billion by 2029, according to Fortune Business Insights. Meanwhile, Amazon has also partnered with fintech outfits such as Block and Intuit to improve its digital finance user experience. JPMorgan analyst Doug Anmuth is sticking with his “overweight” call on AMZN and pegs its target share price at $145, primarily due to Amazon’s robust growth potential. The stock closed at $94.13 on Dec. 2.