What is Happening to Fintech Stocks?
It wasn’t too long ago that fintech was one of the most popular industries for people to invest in. Why? Because digital payments and transfers were gaining legitimate traction thanks to the COVID-19 pandemic. But since the calendar flipped to 2022, it’s been nothing but red for three of the sector’s biggest stocks. PayPal (NASDAQ:PYPL) is down by 46.8%, Block (NYSE:SQ) is down by 40.4%, and SoFi (NASDAQ:SOFI) is down by 27.4%. I understand that growth stocks are being hit hard right now, but this has all of the signs of a market overreaction.
Has fintech just suddenly disappeared? Are we not using mobile payments more than ever? Let’s take a look at these three companies and why I’m adding all of them to my buy list.
PayPal (NASDAQ:PYPL)
Long seen as the leader in the digital payments space, PayPal has had a rough start to 2022. Much of the pain came after a disappointing earnings report that led to the company losing 25% of its market cap in one day. PayPal beat on revenues, missed slightly on earnings, and missed on user growth. In a market where the slightest miss is being punished, PayPal is certainly proof of this. I believe investors are also punishing PayPal’s stock due to the fact that it will be losing eBay (NASDAQ:EBAY) as a customer as the former owner of PayPal moves to its own payment system. But when a door closes a window of opportunity opens. PayPal is partnering with Amazon to provide users with the ability to use its Venmo payments app on the site. If you are a fan of multiples, PayPal is trading with a price to earnings of about 30, lower than pre-pandemic levels.
Block (NYSE:SQ)
This drop has puzzled me more than any other stock this year. Block has seemingly plummeted by 40% for no apparent reason. I think part of it is because of PayPal, and part of it is because of its insistence on being connected to Bitcoin. I’m not the only one either. Wall Street analysts like Bank of America are anticipating a 70% rebound from Block in 2022. This tech beatdown has been relentless, but there’s no reason why Block is trading for as low as it is. The Cash App is a legitimate threat and is gaining access to new markets like Australia through its acquisition of Afterpay. On top of that, CEO Jack Dorsey just stepped down from Twitter to focus on Block full-time. There is already talk of personal Bitcoin miners for home usage in the future for the company. When Block expands to Spain at some point this year, that will make eight markets it is currently in. Eight? Block is set to expand throughout Europe and into every developed nation in the world. Tell me that’s not bullish.
SoFi (NASDAQ:SOFI)
This one is also puzzling. Everyone was waiting for SoFi to get its banking charter, and when it finally does, the stock goes into freefall. Well, the costs of being a national bank are much higher than being a digital fintech platform. With rising interest rates, SoFi could be in over its head as a bank while major national branches are much more prepared for this environment. On top of that, SoFi is still far from profitable, and added costs of being a bank will likely continue to eat into its bottom line for the foreseeable future. Yes, SoFi has the potential for incredible growth, but it was never going to be an overnight transformation. This one, more than PayPal and Block, is going to require some patience and a long-term horizon.
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