5 Of The Best Fintech Stocks To Invest In For The Long Term
Financial technology, also known as fintech, is one of the hottest industries in the market today. For example, in 2020, the Global X Fintech ETF (FINX) that tracks the leading fintech firms in the world, has gained by more than 30%. As shown below, this is a better performance than the overall S&P 500.
The same trend has continued in the private market, where companies like TransferWise and Klarna have raised millions of dollars at multibillion-dollar valuations. In this report, we will look at the best five fintech stocks you should invest in for the long term.
FINX vs S&P 500
In the past two decades, PayPal has evolved from a small money transfer company to become one of the biggest companies in the world. The company’s market value has soared to more than $243 billion and its annual revenue has jumped to almost $20 billion.
PayPal has achieved this through organic growth of its eponymous business and by launching new payment capabilities. For example, while PayPal was started to help people send money, it is now a leading provider of consumer to business payment services.
The firm has also grown through acquisitions. For example, it acquired BrainTree in 2013 for more than $800 million. This acquisition has helped the company improve its business payment services. Most importantly, it came with Venmo, which is one of the biggest peer-to-peer payment services in the US.
Consequently, PayPal’s number of users have skyrocketed to more than 300 million people. As more people shift to online shopping and online payment solutions, the company’s growth will only accelerate. Indeed, in the most recent quarter, the firm’s revenue growth increased by 17% and analysts expect that its revenue will soar to more than $25 billion in 2021.
Adyen is a global payment processor headquartered in Amsterdam. The firm was started in 2009 and is listed on the Euronext Amsterdam exchange.
Adyen offers payment processing services for companies doing business mostly online. It offers point of sale (POS) products and virtual cards, among others. While most people have never heard about it, most of them have used its services. That is because it offers its solutions to some of the biggest companies in the world like Uber, Spotify, Microsoft, and eBay, among others.
Adyen has grown from a relatively small company to one of the biggest fintech firms in Europe. It has a market cap of more than €57 billion euros, which is a substantial premium considering that it was valued at just €7.8 billion in its 2018 IPO.
Its financial metrics have grown as well. In 2019 alone, the company processed transactions worth more than €240 billion, a 51% year-on-year growth. Its total revenue rose by 42% to €497 million while its earnings before interest, taxes, depreciation, and amortization rose by 54% to €279 million. The same growth has continued this year amid the pandemic.
In addition to this growth, other reasons you should invest in Adyen are its strong geographical presence, especially in Europe, low churn rate, and the sizable companies it has as clients.
While Adyen is listed in Amsterdam, American investors can invest in it in the over-the-counter market or through an ETF.
Square is also one of the best fintech stocks to invest in today. The company offers services that are relatively similar to Adyen. It offers solutions that allow companies to collect payments online and through its PoS business. The company also provides loans to companies through its Square Capital product. Most importantly, it helps people to send money through the Cash App product.
Square business has been growing, helping push its market cap to more than $83 billion. Its revenue, at the same time, has jumped to more than $5.88 billion. Analysts expect that the revenue will soar to more than $9.3 billion in 2021.
Investing in Square makes sense for several reasons. First, the firm is one of the leading players in cryptocurrencies. In the second quarter, Cash App processed Bitcoin transactions worth close to $900 billion. More so, recently, the firm announced that it bought Bitcoins worth $50 billion. Second, while its valuation is stretched, Square’s growth can help to sustain it. Finally, while Square is already a big company, it has a large total addressable market abroad.
Started in 1983, Intuit has grown to become one of the biggest fintech firms in the world with a market cap of more than $90 billion. The company offers solutions that help companies and individuals navigate their financial world. For companies, it offers accounting, human resource, and payroll products. QuickBooks is the best-known product in this.
For individuals, it provides money management solutions like Mint and tax products like TurboTax. More than 50 million Americans use its products to file their returns.
Intuit has grown both organically and through acquisitions. Some of its most prominent acquisitions are QuickBooks, Credit Karma, and Origami. At the same time, its revenue has grown from more than $4.6 billion in 2016 to more than $7.6 billion. In this period, its profit has grown from more than $979 million to more than $1.86 billion.
Some of the reasons for investing in Intuit are its sizable market share in its key industries, higher margins, and its dividend that is backed by an excellent payout ratio.
Mastercard is a well-known payment company that is valued at more than $343 billion. It has an annual revenue of more than $16 billion and a net income of more than $8 billion. Indeed, Mastercard has one of the biggest profit margins in the industry because of its business model. The company offers a backend technology that helps power most of the world transactions. Instead, it takes a small cut whenever a person makes a transaction using one of its cards.
While Mastercard is a relatively an old company, it is also in a growth phase. For example, in 2019, it acquired Plaid, a company that helps most fintech companies create products that link to bank accounts. Some of the companies that use its technology are Venmo, Betterment, Coinbase, and Acorns, among others. Mastercard has also partnered with Apple to launch its Apple Pay product. It has also partnered with Goldman Sachs to launch its Marcus cards.
Mastercard – together with Visa – have an impenetrable moat, have high margins, and have sweet dividends that are backed by an excellent payout ratio.
Fintech is a growing industry that is bound to change how people do business and conduct transactions. Therefore, we recommend that you allocate some of your portfolio to this industry. You can do this by buying companies individually or by using exchange traded funds. Among the most popular are ETFMG Prime Mobile Payments ETF (IPAY) and The Global X FinTech ETF (FINX).