Fintech Stocks Lag Behind The Rest Of The Market — Should You Buy Or Sell?
- Fintech stocks have performed worse than financial and technology companies in the past year as consumer spending habits shift due to inflationary pressures.
- As the pandemic-related e-commerce boost fades, the reality is setting in for many of these companies.
- Even though the fintech space was beaten down in 2022, some companies in this space could turn business around in 2023.
It’s almost impossible to read about the stock market in 2022 without seeing how much some of the biggest public companies have dropped in value. Tech giants like Apple and Microsoft have seen share prices dwindle while soaring inflation and aggressive rate hikes have led to concerns over a potential recession. Despite the terrible results in the tech space, the fintech space has managed to have a worse year.
Companies in the financial-tech space became popular because they brought innovation to the classic business models of lending, investing, and payment processing. However, fintech stocks have performed poorly and done worse than both financial stocks and tech giants.
What Happened to Fintech Stocks?
Before we look at fintech stocks, we must address the concept of fintech, which combines finance and technology. This general term often refers to any business focused on applying new technology to a financial business. The business services in this space include payment processing, online banking, mobile banking, peer-to-peer lending, financial software, financial services, and investment services.
As the world continues to go cashless and with many folks relying on simpler payment methods, we saw the number of fintech companies rise in the last few years.
Some of these companies were so focused on growth that they weren’t concerned about profitably or felt the pandemic boom would last longer. With share prices dropping with stock market sell-offs throughout 2022, fintech stocks have had a terrible year.
Eugene Simuni, a fintech analyst from MoffettNathanson, made the following observation about fintech stocks:
“Investors are increasingly wary of high-growth but unprofitable business models, and over the last several quarters, high-growth firms across our coverage have been increasingly giving priority to profitability improvement in their actions and commentary.”
What are Fintech Stocks Worth Looking Into?
While it’s naturally difficult to promote companies that have seen share prices drop, it’s important to keep things in perspective with the fintech industry as a whole. All of the stock prices are as of closing on January 4, 2023.
PayPal Holdings Inc. (PYPL)
PayPal did well during the pandemic months when folks were shopping online and using the digital payment processor. When folks returned to in-person shopping, PayPal saw volume drop. The digital payments giant also has seen increased competition from Apple’s entry into the payment space. PayPal currently has 16% of the global payments market, with Apple trailing behind at 5%, but there’s no telling what the future holds.
The good news is the Venmo app is now on Amazon’s e-commerce platform, and this should attract new business for PayPal.
PayPal shares are currently trading at $77.92 and are down about 58% from one year ago.
Fair Isaac Corporation (FICO)
Regardless of how you feel about credit scores, you can’t ignore the importance of a FICO score because banks and lenders still rely on this information before deciding on whether to lend you money. While this isn’t technically a fintech stock like some others, this established company has been a part of the financial community for a long time.
Since the FICO score is used by lenders and companies in the fintech space, we have to mention this. It’s also one of the rare financial stocks that shot up in value in 2022. The scores business is responsible for over half of the company’s revenue. Even with the cost of borrowing increasing, folks are still applying for all kinds of loans.
FICO’s stock price is currently at $585.36, and it’s up more than 30% from one year ago.
Block Inc (SQ)
Block went on a bull run before 2022, and this stock provided investors with generous returns. However, the company was down as much as 60% at points throughout 2022 due to declining valuations in the tech space and a lack of confidence in the company’s current management team. Despite all of this, the mobile payments processor has still reported strong top-line growth on a quarterly basis. Gross profit for Square was at $783 million last quarter, which was a year-over-year increase of 29%.
Block was an innovator for businesses with simple credit card payment options. The Square card reader changed how small businesses could accept payments. The company then expanded its enterprise services with loans, online payments, and payroll options. On the consumer side, Cash App has over 49 million customers using the service monthly. The payment app had a gross profit of $774 million last quarter, which was an annual increase of 51%.
Block’s stock price is currently $70.01, down 52% from one year ago.
This fintech company offers cloud-based tech platforms and solutions that allow financial institutions to run better. One of the more popular solutions is a loan originations system that helps banks manage the entire loan origination process. With large banks like Wells Fargo and Toronto-Dominion Bank using these services, there’s optimism that this fintech company can sign on larger partnerships in 2023.
Shares of nCino are currently trading at $26.50, which is down about 49% from one year ago.
Shift4 Payments Inc (FOUR)
This is one of the few high-growth fintech companies that has seen its share price go up while other stocks have fallen sharply. The company provides integrated payment processing and technology solutions across the US. We included this fintech stock on the list due to the improved third-quarter financial results that they posted. Gross revenue was up 45% from one year ago to $547.3 million. The net income for the quarter was $46.4 million, which was up from the loss of $13.8 million during the same quarter one year ago.
Shares of FOUR are currently trading at $60.10, with the stock price being up about 7% from one year ago.
Here are some other notable fintech stocks worth tracking in 2023:
- Visa Inc. (V). When the credit card giant released its fiscal fourth-quarter results. It announced a revenue jump for the fiscal year of 22% to $29.3 billion. With interest rates going up, Visa is in a strong position for 2023.
- SoFi Technologies Inc. (SOFI). They’ve been expanding their product offering over the last few years, but companies that focus on consumer lending have dropped steeply in the past year. There’s hope that the ongoing business momentum can be enough to get through the short-term economic struggles.
- Robinhood Markets Inc. (HOOD). The stock is down about 49% from a year ago due to the usual issues and concerns over the cryptocurrency space. However, this is still one of the best investing platforms for young folks that want an easy-to-use interface.
As always, we urge you to conduct your due diligence before investing in any fintech stock because the landscape is changing quicker than ever.
Should You Buy Fintech Stocks?
Every company on the aforementioned list is in a unique situation, and there’s no telling what the future could hold. However, right now may not be the best time to invest your money into the fintech space as there could be further rate hikes.
Here are a few other factors to consider before investing in fintech stocks.
A recession isn’t out of the question.
Recession talks are still prevalent as rate hikes continue with the Fed making it clear that the goal is to cool down the economy. Many analysts fear that the soft landing scenario isn’t possible and that we may enter a full blown recession in 2023.
A recession would mean that the entire economy is in a downturn, and every aspect of the economy would feel the impact. This would also hurt consumer confidence as people won’t be eager to spend money when they have to worry about a potential job loss. This would hurt any business involved in loaning money or payment processing.
Increased competition from established tech giants.
Companies in the space of financial services and payment processing will be seeing competition from Apple as we await the official launch of Apple Pay Later. This new service would be a buy now, pay later program that would be in direct competition with PayPal and other digital payment processing firms.
How Should You Be Investing?
The stock market hasn’t been kind to fintech stocks as soaring inflation continues to hurt investor confidence. This means that finding stocks to put your money into is a challenging task at best, and there are many risks involved with investing right now.
There are ways to make your portfolio more defensive and less exposed to risk. Take a look at Q.ai’s Inflation Kit or Precious Metals Kit, and protect your investments from dropping in value so that you don’t have to worry about checking the market reports daily. Better still, you can activate Portfolio Protection at any time to protect your gains and reduce your losses.
As we’ve outlined in previous articles, 2022 was a rough year for artificial intelligence stocks, tech stocks, and especially fintech stocks. One can be optimistic about the future, but it’s more important to be realistic when money is involved. If the economy can recover in 2023, then there’s hope that fintech stocks will bounce back. However, we can’t ignore the reality that many of these companies simply became too focused on growth during the pandemic months when consumer spending habits were shifting and profitability wasn’t keeping up.
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