Fintech stocks are lagging the rest of the market: should you buy or sell?

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Key learning points

  • Fintech stocks have underperformed financial and technology companies over the past year as consumer spending patterns change due to inflationary pressures.
  • As the pandemic-related e-commerce boost fades, reality sets in for many of these companies.
  • While the fintech space was knocked down in 2022, some companies in this space could turn things around in 2023.

It’s almost impossible to read about the stock market in 2022 without seeing how many of the largest publicly traded companies have fallen in value. Tech giants such as Apple and Microsoft have seen share prices fall, while high inflation and aggressive rate hikes have led to concerns about a possible recession. Despite the terrible results in the tech space, the fintech space has had a worse year.

Financial technology companies became popular because they brought innovation to the classic business models of lending, investing and payment processing. However, fintech stocks have underperformed and underperformed both financial stocks and tech giants.

While other fintech companies are struggling to stay afloat, Q.ai is driving a personal wealth movement, democratizing investing for everyone. But here’s what’s up with space in general.

What Happened to Fintech Stocks?

Before we look at fintech stocks, we should cover the concept of fintech, which combines finance and technology. This general term often refers to any company that focuses on applying new technology to a financial company. 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 remains cashless and many people rely on simpler payment methods, we have seen the number of fintech companies increase in recent years.

Some of these companies were so focused on growth that they didn’t worry about profitability or think the pandemic boom would last longer. With stock prices falling in 2022 and stock markets selling off, fintech stocks have had a terrible year.

Eugene Simuni, a fintech analyst from MoffettNathanson, made the following comment on fintech stocks:

“Investors are increasingly wary of high-growth but unprofitable business models, and in recent quarters high-growth companies in our coverage have increasingly prioritized improving profitability in their actions and commentary.”

What are Fintech Stocks Worth Watching?

While it’s obviously hard to promote companies that have seen share prices fall, it’s important to keep things in perspective with the fintech industry as a whole. All share prices are as of close on January 4, 2023.

PayPal Holdings Inc. (PYPL)

PayPal did well during the pandemic months as people shopped online and used the digital payment processor. As people returned to in-person shopping, PayPal saw volume drop. The digital payments giant has also faced increasing competition from Apple’s entry into the payments space. PayPal currently holds 16% of the global payments market, with Apple trailing with 5%, but there’s no telling what the future holds.

The good news is that the Venmo app is now on Amazon’s ecommerce platform, and this should attract new customers to PayPal.

PayPal shares are currently trading at $77.92 and are about 58% down from a year ago.

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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 whether to lend you money. While not 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 it. It is also one of the few financial stocks to have appreciated in value in 2022. The scores business is responsible for more than half of the company’s revenue. Even with the cost of borrowing rising, people are still applying for all kinds of loans.

FICO’s stock price currently stands at $585.36, up more than 30% from a year ago.

Block Inc (SQ)

Block went on a bull run prior to 2022, and this stock provided generous returns to investors. However, the company fell as much as 60% on points in 2022 due to falling valuations in the tech space and a lack of confidence in the company’s current management team. Despite all this, the mobile payment processor has still reported strong revenue growth on a quarterly basis. Gross profit for Square last quarter was $783 million, up 29% year over year.

Block was an innovator for businesses with easy credit card payment options. The Square card reader changed the way small businesses could accept payments. The company then expanded its business services to include loans, online payments, and payroll. On the consumer side, Cash App has over 49 million customers using the service every month. The payments app grossed $774 million last quarter, an annual increase of 51%.

Block’s stock price is currently $70.01, down 52% from a year ago.

nCino (NCNO)

This fintech company offers cloud-based tech platforms and solutions that help financial institutions run better. One of the more popular solutions is a loan origination system that helps banks manage the entire loan origination process. With major banks like Wells Fargo and Toronto-Dominion Bank using these services, there is optimism that this fintech company will be able to form bigger partnerships in 2023.

Shares of nCino are currently trading at $26.50, which is about 49% lower than a year ago.

Shift4 Payments Inc (FOUR)

This is one of the few high-growth fintech companies whose stock price has risen while other stocks have plummeted. The company offers integrated payment processing and technology solutions in the US. We listed this fintech stock because of the improved third quarter financial results they posted. Gross revenue increased 45% from a year ago to $547.3 million. Net profit for the quarter was $46.4 million, up from a loss of $13.8 million in the year-ago quarter.

Shares of VIER are currently trading at $60.10, with the share price up about 7% from a year ago.

Here are some other noteworthy fintech stocks worth following in 2023:

  • Visa Inc. (V). When the credit card giant released its fourth-quarter fiscal results. It announced a revenue increase for the fiscal year of 22% to $29.3 billion. With interest rates rising, Visa is in a strong position for 2023.
  • SoFi Technologies Inc. (SOFI). They have expanded their product offerings in recent years, but companies focused on consumer loans have fallen sharply over the past year. There is hope that the continued business momentum may be enough to weather the short-term economic problems.
  • Robinhood Markets Inc. (HOOD). The stock is down about 49% from a year ago due to the usual issues and concerns about the cryptocurrency space. However, this is still one of the best investment platforms for young people who want an easy-to-use interface.

As always, we recommend that you do your due diligence before investing in fintech stocks as the landscape is changing faster than ever.

Should You Buy Fintech Stocks?

Each company on the aforementioned list is in a unique situation and there’s no telling what the future might hold. However, right now may not be the best time to invest your money in the fintech space as further rate hikes could follow.

Here are a few other factors to consider before investing in fintech stocks.

A recession cannot be ruled out.

There are still talks of a recession as rate hikes continue, with the Fed making it clear that the goal is to cool the economy. Many analysts fear that the soft landing scenario is not possible and that we could end up in a full-blown recession in 2023.

A recession would mean the entire economy is in recession, and every aspect of the economy would feel the impact. This would also damage consumer confidence, as people are reluctant to spend money if they have to worry about possible job loss. This would hurt any business involved in lending money or processing payments.

More competition from established tech giants.

Financial services and payment processing companies will see competition from Apple as we wait for 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 companies.

How should you invest?

The stock market has not been kind to fintech stocks as rising inflation continues to erode investor confidence. This means that finding stocks to put your money in is a challenging task at best, and there are many risks associated with investing right now.

There are ways to make your portfolio more defensive and less exposed to risk. Check out Q.ai’s Inflation Kit or Precious Metals Kit and protect your investments from depreciation, so you don’t have to worry about checking the market reports daily. In fact, you can activate Portfolio Protection at any time to protect your profits and reduce your losses.

it comes down to

As we’ve outlined in previous articles, 2022 has been a tough year for artificial intelligence stocks, technology stocks, and especially fintech stocks. One can be optimistic about the future, but it is more important to be realistic when it comes to money. If the economy can recover in 2023, there is hope that fintech stocks will recover. However, we can’t ignore the reality that many of these companies simply became too focused on growth during the months of the pandemic, when consumer spending patterns changed and profitability failed to keep pace.

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