The fintech (short for financial technology) industry is transforming the US financial sector. The industry has started to transform how money works. It has already changed the way we buy groceries or deposit money at banks. The ongoing pandemic and the consequent “new normal” have given a solid boost to the industry’s growth with more consumers shifting toward remote payment.
As the world continues to evolve throughout this pandemic, the dependence on fintech companies has been increasing, helping their stocks significantly outperform the market. ARK Fintech Innovation ETF (ARKF), which invests in several fintech areas, has gained more than 90% so far this year, significantly outperforming the SPDR S&P 500 (SPY) ETF’s 8.8% return during the same period.
Shares of fintech companies like PayPal Holdings, Inc. (PYPL), Square, Inc. (SQ), The Trade Desk, Inc. (TTD), and Green Dot Corporation (GDOT) are well-positioned to reach new highs with the growing adoption of remote transactions.
PayPal Holdings, Inc. (PYPL)
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 over 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.
In line with the spike in the crypto rates and popularity in recent years, PYPL has launched a new service enabling its customers to trade cryptocurrencies directly from their PayPal account. Moreover, it rolled out a QR code touchless payment system into its point-of-sale systems and e-commerce rewards to boast digital payments amid the pandemic.
PYPL added more than 15.2 million new accounts in the third quarter of 2020 and witnessed a total payment volume (TPV) of $247 billion, growing 38% from the year-ago quarter. Merchant Services volume surged 40% and represented 93% of TPV. Revenue increased 25% year-over-year to $5.46 billion. EPS for the quarter came in at $0.86, rising 121% year-over-year.
The shift to digital payments is one of the major trends that should only accelerate over the next couple of decades. Hence, analysts expect PYPL’s EPS to grow 23% per annum over the next five years. The stock closed Friday’s trading session at $202.73, gaining 87.2% year-to-date. It is presently trading just 6% below its 52-week high of $215.83.
How does PYPL stack up for the POWR Ratings?
A for Trade Grade
B for Buy & Hold Grade
A for Peer Grade
B for Overall POWR Rating.
It is ranked #2 out of 46 stocks in the Consumer Financial Services industry.
Square, Inc. (SQ)
SQ develops and provides payment and point-of-sale solutions in the United States and internationally. It provides Square Register, a point-of-sale system that takes care of digital receipts, inventory, and sales reports, as well as provides analytics and feedback.
SQ is the fastest-growing fintech company in terms of digital wallet usage in the US. The company has recently expanded into banking by getting FDIC approval to offer small business loans and consumer financial products on its Cash App platform. The company strongly believes in cryptocurrency as an instrument of economic empowerment and has put 1% of its total assets, worth nearly $50 million, in bitcoin.
In the third quarter, SQ’s net revenue climbed 140% year-over-year to $3 billion on the back of its Cash App ecosystem. The company delivered a record gross profit 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 has been efficiently leveraging relentless innovation allowing the company to accelerate growth even amid a challenging economic backdrop. The market expects EPS to rise by 75.8% next year. The stock closed Friday’s trading session at $198.08, after hitting its all-time high of $201.33. It has gained more than 215% year-to-date.
SQ is rated “Buy” in our POWR Ratings system, consistent with its strong momentum. It holds a “B” in Trade Grade and Peer Grade. It is ranked #5 out of 232 stocks in the Financial Services (Enterprise) industry.
The Trade Desk, Inc. (TTD)
TTD operates a self-service cloud-based platform that enables ad buyers to purchase and manage data-driven digital advertising campaigns, in various formats, using their teams in the United States and internationally. It also provides data and other value-added services, as well as platform features.
TTD has recently announced that Nielsen (NLSN), a global measurement and data analytics company, is supporting the industry-wide initiative to deploy the Unified ID 2.0. The ID is powered by a secured technology that enables advertisers to seek an upgrade to an alternative to third-party cookies.
The most recent third-quarter result reported by TTD did not fail to impress the street. Revenues increased 32% year-over-year to $216 million, primarily contributed by the 100% sequential growth in the connected TV (CTV) market. Customer retention remained over 95% during the quarter. EPS came in at $0.84, more than doubling from the year-ago value of $0.40.
As advertising spend rebounds, TTD’s CTV growth momentum is expected to continue. Hence, analysts expect TTD’s EPS to grow 29% per annum over the next five years. The stock closed Friday’s trading session at $819.34, after hitting its all-time high of $847.50. TTD has gained more than 215.4% year-to-date.
It’s no surprise that TTD is rated “Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, and a “B” for Peer Grade and Industry Rank. It is ranked #12 out of 96 stocks in the Software – Application industry.
Green Dot Corporation (GDOT)
GDOT is a fintech and bank holding company that is empowering people toward non-traditional banking products by providing people reliable, affordable debit accounts that make everyday banking hassle-free. Its BaaS (Banking as a Service) platform is growing among America’s most prominent consumer and technology companies.
GDOT has recently launched a strategic long-term investment and partnership with Gig Wage, a 1099 payments platform, to deliver better banking and financial tools to the world’s growing gig economy.
GDOT had an excellent third quarter as its total operating revenues grew 21.3% year-over-year to $291 million. The purchase volume spiked 25.7% year-over-year to $7.6 billion. Active accounts at the end of the quarter came in at 5.72 million, growing 10.4% compared to the year-ago quarter. However, the company reported a loss of $0.06 per share, compared to the year-ago loss of $0.01 per share.
GDOT is a chartered bank that gives it an advantage over other BaaS fintech providers. Hence, the street expects EPS to grow 13.1% next year. The stock closed Friday’s trading session at $55.53, gaining 138.3% year-to-date. It is presently trading 14.5% below its all-time high of $64.97.
GDOT’s POWR Ratings reflect this promising outlook. It has an overall rating of “Buy” with a “B” for Trade Grade and Peer Grade. Among the 46 stocks in the Consumer Financial Services industry, it’s ranked #7.
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PYPL shares rose $1.50 (+0.81%) in after-hours trading Monday. Year-to-date, PYPL has gained 70.77%, versus a 11.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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