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What Does 2022 Hold For Fintech Stocks? — Trefis

What Does 2022 Hold For Fintech Stocks? -- Trefis
Written by publishing team

our topic Fintech Stock — which includes digital payments and lending players, card networks, and players in insurance technology — 2021 has seen a tough year, down about 11% over the year, compared to the S&P 500 which is up about 27%. Now, companies in our topic have already seen strong demand growth through 2021, driven by increased e-commerce spending, a rapid shift from cash to digital payments, and a growing interest in cryptocurrencies and digital wallets. From a perspective perspective, revenue growth for the companies in our topic has averaged around 32% over the past twelve months, with operating margins also trending slightly higher. However, investors have turned somewhat cautious about high-growth, high-value stocks amid the possibility that the US Federal Reserve will raise multiple interest rates in 2022, likely to be a drag on fintech names given that they are trading at multiples above market. Within our topic, Mastercard (NYSE:MA) was the strongest performer, with its stock up about 4.5% over the past 12 months. On the other hand, Square (NYSE:SQ) was the worst performer, with its stock down nearly 36% over the past 12 months.

So what is the future outlook for the topic? The opportunities for fintech companies are enormous, given the total size of the banking, lending, trading, investment and insurance industries. Unlike the traditional financial services industry, which incurs high costs related to branches, staffing, customer acquisition, and regulatory overheads, fintech players operate largely by default, with asset-light models that give companies scope to increase margins if they build scale. However, it is difficult to predict the trajectory of fintech stock prices in 2022, given the rising interest rate environment and the potential for investors to continue to limit exposure to pandemic winners.

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Below you will find our previous coverage of Fintech where you can trace our view over time.

[11/18/2021] Fiserv, PayPal, Square: Fintech stocks remain low. Should you buy?

our topic Fintech Stock — which includes digital payments, players in lending, card networks and players in insurance technology — is still down about 1% year-to-date on a similar weighted basis, compared to the broader S&P 500, which has gained about 25% over the same period. Two factors are likely driving the recent poor performance. First, these stocks have been soaring into 2020, up about 80% over the year, that investors will likely book some profits this year and rotate value and cyclical stocks to play the Covid-19 reopening. Furthermore, some of the companies in our topic are also affected by the possibility that e-commerce sales growth during the holidays will be muted due to supply chain issues and shortages, and in-store sales increase as customers become more adventurous.

However, we still believe the topic will benefit from a secular shift to digital and contactless payments from physical payments, the growing adoption of e-commerce, and improved financial inclusion in the United States and abroad. Square Stocks (SQ) was the strongest performer on our topic, up about 10% year-to-date. Square is emerging as a big player in payments, with offerings including the Cash app, which allows users to send and receive money, and Square Point-of-Sale, which enables merchants to process payments via a smartphone. On the other hand, Fiserv (FISV) stock has been the worst performer, down about 1% year-to-date. The company provides financial technology solutions to banks, thrifts, credit unions, stockbrokers, leasing and finance companies, and retailers.

Do you think cryptocurrency can disrupt the banking industry? Looking for the upside of Bitcoin adoption, without buying the cryptocurrency itself? You can find more about our topic at Cryptocurrency stocks

[9/24/2021] Fintech stocks continue to lag behind the market. Time to buy?

our topic Fintech Stock — which includes digital payments, players in lending, card networks and players in insurance technology — is still down about 1% year-to-date on an evenly-weighted basis, compared to the broader S&P 500, which gained 19% over the same period. While the bulk of the subject’s underperformance has been driven by a single stock, insurance tech company Lemonade which is down 44% year-to-date due to mixed quarterly reports that posted its 2020 IPO, and even other names like Visa (NYSE:V) and Kan Fiserv (NASDAQ:FISV) also underperformed. However, we believe the topic will benefit in the long run from multiple directions including a secular shift to digital and contactless payments from physical payments, increased adoption of e-commerce, and improved financial inclusion in the United States and abroad. Here are some recent developments for some of the stocks in our topic.

PayPal (NASDAQ:PYPL) is up about 19% since the beginning of the year. Earlier this week, the company gave its app an overhaul by adding new savings accounts and shopping tools within the app as it looks to go beyond the basic payments realm to become a super financial app of sorts.

Visa (NYSE:V) is back just 4.4% over the year, as the company has seen a slowdown in cross-border trading volumes and a drop in consumer spending due to Covid-19. However, things are improving as vaccination rates have improved and Covid-19 cases have eased slightly in recent weeks.

Green Dot (NYSE: GDOT), a financial technology company best known for its prepaid cards and banking services, has seen its stock fall 9.3% year-to-date, with the stock correcting slightly after its big rally through 2020. However, the business It continues to do well, with the company consistently beating its quarterly earnings expectations this year.

[8/4/2021] Square-Afterpay deal refocuses on Fintech stock

our topic Fintech Stock — which includes digital payments, lending players, card networks and insurance technology operators — is still down about 1% since the start of the year, compared to the broader S&P 500, which has gained 17% since the start of the year. The poor performance comes as investors rotate into technology and high-growth names in cyclical stocks to play reopening after the Covid-19 shutdown. However, the topic should return to the spotlight after major Fintech (SQ) recently announced that it would buy Afterpay, an Australian buy-now, pay-later (BNPL) company in a $29 billion all-share deal. The deal is significant to Square (and the broader fintech space), as it combines popular consumer apps and commerce solutions from Square with an element of financing, as it looks to acquire banks and credit card companies for a larger share of the payments market. The deal also comes at a time when younger customers are moving away from traditional credit, with “pay later” products gaining a stake.

inside fintech stocks topic, Square has been the strongest performer, with its stock up nearly 23% since the beginning of the year. On the flip side, insurance technology player Lemonade (LMND), has fared the worst, with its stock down 30% this year.

[7/13/2021] Square, Lemonade, Fiserve: Fintech stocks underperform. Time to buy?

our topic Fintech Stock It includes the digital payments and lending players, card networks, and insurance technology players that could disrupt the more than $1.5 trillion US insurance and financial services industry. These companies are likely to be among the biggest beneficiaries of the secular shift to digital payments from physical payments, increased adoption of e-commerce, and the need to improve financial inclusion in the United States and abroad. From a perspective perspective, about 25% of American households either don’t bank or have enough banks according to the FDIC, and technology could help bridge the gap. The fintech business is also potentially very profitable. In contrast to the traditional financial industry, which incurs high costs related to branches, staffing, customer acquisition, and regulatory overheads, fintech players operate almost to a large extent, with lighter asset models that give them more room to improve margins. Opportunities notwithstanding, the topic has underperformed significantly this year, returning just 2% since the start of the year, compared to the S&P 500 which has remained up about 16% over the same period. Below is more about some of the stocks in our topic and how they performed.

PayPal (PYPL) is one of the largest digital payments operators. The stock was the strongest performer within our topic with a 29% return since the start of the year, driven by peer-to-peer payment app Venmo, which has gained traction over Covid-19. The company’s move to enable customers to buy and sell the popular cryptocurrency bitcoin on its platform also appears to have helped the stock.

Square (SQ), another major digital payments company, has seen its stock gain nearly 12% since the start of the year, as Square Cash — best known for its peer-to-peer payments — continues to push its banking and investment-related services. Like PayPal, the company is also betting on the crypto space.

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Visa (V) is the world’s largest electronic payment solutions company. The stock has underperformed this year, gaining just about 9% since the start of the year, as the Covid-19-related travel slowdown has lowered the volume of cross-border transactions. However, with the economy reopening, the company is seeing a slight rise in consumer spending levels and this should bode well for the stock.

Fiserv (FISV) is a company that provides financial technology solutions to banks, thrifts, credit unions, stockbrokers, leasing and finance companies, and retailers. The stock is still down about 4.4% year-to-date.

Lemonade (LMND) is an insurance technology company focused on renters and homeowners insurance, pet insurance, and life insurance. The company, which went public last year, continues to be the worst performer within our topic, down 21% year-to-date. The sale is likely due to the mixed quarterly results and the expiration of the post-IPO closing period.

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