By Sirisha Bhogaraju
published
COVID-19 accelerated the adoption of digital payments. Work-from-home arrangements, lockdowns and the surge in e-commerce drove a surge in digital payments and benefited various financial technology firms, also known as fintech stocks.
Per the World Bank, about 67% of adults worldwide now make or receive a digital payment. Furthermore, the proportion of adults utilizing digital payments in developing economies increased to 57% in 2021 from 35% in 2014.
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The solid demand for digital payments has attracted new as well as established players in the fintech space. A report by research firm CB Insights revealed that fintech funding surged 168% to nearly $132 billion in 2021. It's worth noting that $1 out of every $5 of venture capital funding in 2021 was invested in a fintech startup.
Amid the growing acceptance of digital payments, partnerships as well as mergers and acquisitions are on the rise, with tech giants like Apple (AAPL) and Amazon (AMZN) eyeing growth in the lucrative fintech market.
Meanwhile, the fading of pandemic-induced tailwinds, macro challenges, geopolitical concerns and a potential economic slowdown could impact fintech stocks over the near term. That said, the long-term prospects for the financial technology space look attractive due to the convenience and speed of transacting, continued rise in e-commerce and the growing adoption of contactless and mobile payments.
With that in mind, we have shortlisted five fintech stocks for long-term investors. Using the TipRanks database, we narrowed the search to find names that have earned Moderate Buy or Strong Buy ratings from Wall Street pros. What's more, each offers significant upside potential to current levels based on their consensus price targets.
Disclaimer
Data is as of Aug. 24. Stocks are listed in reverse order of the amount of upside potential implied by TipRanks-surveyed analysts' consensus price targets.
Topics
ListsWall Street
1/5
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Mastercard
- Market value: $328.3 billion
- TipRanks consensus price target: $412.24 (21.4% upside potential)
- TipRanks consensus rating: Strong buy
With an extensive network spread across more than 210 countries, Mastercard (MA, $339.71) is the second-largest payment processing company in the world, behind rival Visa (V). The company doesn't directly issue cards, extend credit and set or receive revenue from interest rates charged to the user. Instead, it earns a fee by enabling electronic payments between consumers, financial institutions, merchants and other entities, as well as offering other value-added services.
MA continues to expand its presence through new partnerships and fintech products. It aims to further increase the transactions in its network through additional acceptance locations. It's worth noting that the company's acceptance locations have more than doubled over the past five years. Mastercard is now accepted at over 90 million merchant locations globally. The firm is also focusing on capturing growth via emerging payment solutions like buy now, pay later (BNPL).
As for recent financial performance, MA topped analysts' expectations for the second quarter of 2022, as a strong rebound in travel helped drive a 58% rise in cross-border transaction volumes. Per the company's earnings call, cross-border travel reached 118% of 2019 levels in the second quarter.
Overall, Q2 revenue grew 21% year-over-year to $5.5 billion, while adjusted earnings per share (EPS) increased 31% to $2.56. Gross dollar volume, which indicates activity on the Mastercard network, surged 14% on a local currency basis to $2.1 trillion.
In reaction to the Q2 results, Truist Securities analyst Andrew Jeffrey increased his price target for Mastercard stock to $440 from $420 and maintained a Buy rating. Jeffrey highlighted the company's market share gains and called it the "best fintech" within his coverage. The analyst continues to be optimistic about Mastercard based on its cross-border exposure, operating leverage, a solid balance sheet and an impressive management team.
Several Wall Street analysts seem to agree that MA is one of the best fintech stocks out there. Shares have a Strong Buy rating backed by 19 Buys against just one Hold and one Sell. See the full rundown of analyst ratings for MA on TipRanks.
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2/5
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Visa
- Market value: $435.8 billion
- TipRanks consensus price target: $255.55 (23.7% upside potential)
- TipRanks consensus rating: Strong buy
Visa (V, $206.67) has the largest payments processing network in the world. The company doesn't doesn't directly issue cards or bear any credit risk, rather it earns revenue by facilitating the movement of money between the parties involved, through transaction processing services (like authorization, clearing and settlement), as well as other value-added services.
Despite macro uncertainty, currency headwinds and the suspension of its business in Russia, Visa posted better-than-anticipated results for its fiscal third quarter, ended June 30, 2022. Revenue grew 19% year-over-year to $7.3 billion, while adjusted earnings per share surged 33% to $1.98.
Results gained from a 12% growth in payments volume and a 40% rise in cross-border volumes on a constant currency basis. Overall, payments volume grew by 8% in nominal terms to $2.9 trillion. What's more, the financial services powerhouse processed 49.3 billion transactions in the fiscal third quarter, up 16% year-over-year. A rebound in travel demand was the key growth driver in the quarter.
Furthermore, Visa expects the trends in payments volume and processed transactions to continue through the fiscal fourth quarter. The company said in its earnings call that it is "seeing no evidence of a pullback in consumer spending." Overall, Visa expects fiscal fourth quarter revenue to grow in the high-teens to 20% range in constant dollars.
Impressed with Visa's performance, Morgan Stanley analyst James Faucette raised his price target for Visa stock to $291 from $284 on higher EPS estimates. The analyst is positive about the Dow Jones stock based on "limited impact from macro headwinds," coupled with continued rebound in cross-border travel.
"Investors may still be in' 'wait and see' mode, but we see V well-positioned for a variety of outcomes," Faucette says. He has an Overweight (Buy) rating on Visa and recently upped his EPS estimates for 2022 and 2023 by 5% and 2%, respectively.
The majority of Wall Street pros think V is one of the best fintech stocks moving forward. All in all, Visa scores a Strong Buy rating with 19 Buy recommendations and three Hold ratings. See what else the pros have to say about Visa on TipRanks.
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3/5
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PayPal Holdings
- Market value: $108.4 billion
- TipRanks consensus price target: $120.08 (28.1% upside potential)
- TipRanks consensus rating: Moderate buy
It's hard to have a list of the best fintech stocks and not have PayPal Holdings (PYPL, $93.76) on it. PYPL is a leading digital payments platform, connecting merchants and customers in over 200 countries. PayPal stock tanked significantly this year due to concerns about the company's profitability amid slowing growth rates following the waning of pandemic-led tailwinds, but it is still one of the top stocks to watch for the rest of 2022.
Plus, PayPal's recently reported second-quarter results offered some respite to investors, with the company exceeding analysts' revenue and earnings expectations. At the end of Q2, PayPal had 429 million active accounts up 6% year-over-year. Also, total payment volume (TPV) grew 9% to $340 billion.
PayPal also raised its full-year adjusted earnings guidance. However, the company trimmed its 2022 revenue guidance, now expecting growth of 11% on a currency neutral basis compared to the prior growth outlook of 11%-13%.
Meanwhile, investors cheered Paypal's confirmation that activist investor Elliott Investment Management is now one of the company's largest shareholders, with a stake of nearly $2 billion. The involvement of Elliott is expected to help PayPal focus more on improving its profitability.
As part of its transformation efforts, PayPal is targeting a cost reduction of $900 million in 2022 and savings of at least $1.3 billion in 2023. Furthermore, the company is increasing its focus on its core Checkout business, its PayPal and Venmo digital wallets, and the Braintree platform.
Paypal is also focusing on growth areas like buy now, pay later. The company's BNPL products witnessed volumes of $4.9 billion in Q2, more than tripling on a year-over-year basis. PYPL recently launched its new BNPL offering called PayPal Pay Monthly, which allows consumers to spread payments out over longer periods of time.
Following the Q2 results, KeyBanc analyst Josh Beck increased his price target for PayPal to $115 from $100 based on his improved EBIT (earnings before interest and taxes) estimates. Beck recommends investors to buy PayPal stock as he believes that "a sharper focus is likely to translate into sustained share gains and improved profitability."
Of the 30 analysts covering PayPal, 23 have a Buy rating and eight have a Hold recommendation. Check out Wall Street's average, highest and lowest price targets for PYPL on TipRanks.
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4/5
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MercadoLibre
- Market value: $45.2 billion
- TipRanks consensus price target: $1,255.91 (39.9% upside potential)
- TipRanks consensus rating: Strong buy
MercadoLibre (MELI, $898.00) is the largest e-commerce and payments platform in Latin America. Often called the "Amazon of Latin America," the company's e-commerce marketplace currently has a presence in 18 countries.
MELI delivered stellar results in the second quarter, with revenue growing about 53% to $2.6 billion and earnings per share rising over 77% to $2.43. The company's e-commerce marketplace continues to grow at an attractive pace despite tough year-over-year comparisons, making it one of the top consumer discretionary stocks out there. But MELI is also one of the best fintech stocks to watch going forward. This is because its fintech arm, Mercado Pago, is witnessing phenomenal growth.
In Q2, MercadoLibre's commerce revenue grew 23% to $1.4 billion, while fintech revenue jumped 113% to $1.19 billion. Total payment volume came in at $30.2 billion, marking a 72.3% year-over-year increase.
Mercado Pago had over 38 million unique active users at the end of the second quarter, supported by higher engagement in wallet payments and a growing credit user base. Overall, MercadoLibre is well-positioned to boost its business by further penetrating the e-commerce and fintech markets in Latin America.
MercadoLibre's impressive Q2 performance prompted BTIG analyst Marvin Fong to boost his price target for the fintech stock to $1,215 from $1,040 and reiterate a Buy rating. Fong noted that, like in the first quarter, the company's TPV growth, credit portfolio and profitability continued to be impressive in the second quarter as well.
"Overall, we believe investors should have little to quibble with given market share gains while also delivering strong profitability," Fong said. "We view MELI as only getting stronger with each passing quarter."
Overall, MercadoLibre boasts a Strong Buy rating from the Wall Street community with 10 Buys and one Hold recommendation. Check out other analysts' price targets and analysis for MELI at TipRanks.
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5/5
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Block
- Market value: $42.9 billion
- TipRanks consensus price target: $112.97 (55.6% upside potential)
- TipRanks consensus rating: Strong Buy
Financial services company Block (SQ, $72.62) has two primary ecosystems – Square (used by merchants) and Cash App (a peer-to-peer payment solution). Earlier this year, Block acquired Afterpay to capture the demand for the Buy Now, Pay Later functionality.
Despite beating analysts' expectations, Block's recent Q2 earnings failed to impress investors as both revenue and earnings declined on a year-over-year basis. The company's Cash App ecosystem was impacted by a 34% decline in Bitcoin revenue amid a crash in prices of digital assets. The company recorded a $36 million impairment loss on its Bitcoin investment over the three-month period.
Looking ahead, Block expects its overall gross profit growth rate to improve based on encouraging trends through July. Cash App's gross profit growth rate, excluding Afterpay, could improve in the second half of the year, driven by the increased adoption of recent commerce and financial services product launches.
Meanwhile, Block is focusing on boosting its international business and launched 44 products in the first half of the year under its Square ecosystem. In the second quarter, Square's gross payment volume in international markets grew 45%, outpacing the 22% rise in the U.S. GPV, as well as the 25% growth seen in the overall Square ecosystem.
Evercore ISI analyst David Togut reiterated an Outperform (Buy) rating on Block stock following the recent quarterly performance. Togut is optimistic that Cash App's gross profit growth would reaccelerate following challenging year-over-year comparisons.
"SQ continues to be the most disruptive company in payments and banking, in our view," Togut said. "Rapid innovation should fuel continued TAM [Total Addressable Market] expansion. Afterpay should help reaccelerate Cash App gross profit growth combined with the integration of SQ's Cash App and Seller ecosystems."
Togut is not alone in his bullish view toward one of Wall Street's best fintech stocks, with 27 out of 35 analysts have a Buy rating for Block stock. See the full rundown of analyst ratings for Block on TipRanks.
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Based on the information provided in the article, here is some information related to the concepts mentioned:
Digital Payments and Fintech Stocks
- The COVID-19 pandemic accelerated the adoption of digital payments due to work-from-home arrangements, lockdowns, and the surge in e-commerce [[1]].
- The World Bank reports that about 67% of adults worldwide now make or receive digital payments, and the proportion of adults utilizing digital payments in developing economies increased to 57% in 2021 from 35% in 2014 [[1]].
- The growing acceptance of digital payments has attracted new and established players in the fintech space [[1]].
- Fintech funding surged 168% to nearly $132 billion in 2021, with $1 out of every $5 of venture capital funding invested in a fintech startup [[1]].
Mastercard
- Mastercard (MA) is the second-largest payment processing company in the world, with an extensive network spread across more than 210 countries [[2]].
- MA earns a fee by enabling electronic payments between consumers, financial institutions, merchants, and other entities [[2]].
- The company aims to increase transactions in its network through additional acceptance locations and is accepted at over 90 million merchant locations globally [[2]].
- MA is focusing on capturing growth through emerging payment solutions like buy now, pay later (BNPL) [[2]].
- In Q2 2022, MA's revenue grew 21% year-over-year to $5.5 billion, and adjusted earnings per share (EPS) increased 31% to $2.56 [[2]].
- Several Wall Street analysts have a Strong Buy rating on MA [[2]].
Visa
- Visa (V) has the largest payments processing network in the world [[3]].
- V earns revenue by facilitating the movement of money between parties involved in transactions and offers value-added services [[3]].
- Despite macro uncertainty, currency headwinds, and the suspension of its business in Russia, V posted better-than-anticipated results for its fiscal third quarter of 2022 [[3]].
- V's revenue grew 19% year-over-year to $7.3 billion, and adjusted earnings per share surged 33% to $1.98 in Q3 2022 [[3]].
- Visa expects the trends in payments volume and processed transactions to continue through the fiscal fourth quarter [[3]].
- Wall Street analysts have a Strong Buy rating on V [[3]].
PayPal Holdings
- PayPal Holdings (PYPL) is a leading digital payments platform, connecting merchants and customers in over 200 countries [[4]].
- PYPL's second-quarter results exceeded analysts' expectations, with 429 million active accounts and total payment volume (TPV) of $340 billion [[4]].
- The company raised its full-year adjusted earnings guidance but trimmed its 2022 revenue guidance [[4]].
- PYPL is targeting cost reduction and increasing its focus on core business areas like Checkout, PayPal and Venmo digital wallets, and the Braintree platform [[4]].
- PYPL's buy now, pay later (BNPL) products witnessed significant growth in Q2 [[4]].
- Wall Street analysts have a Moderate Buy rating on PYPL [[4]].
MercadoLibre
- MercadoLibre (MELI) is the largest e-commerce and payments platform in Latin America [[5]].
- MELI's revenue grew about 53% to $2.6 billion in Q2 2022, and its fintech arm, Mercado Pago, witnessed phenomenal growth [[5]].
- Total payment volume for Mercado Pago came in at $30.2 billion, marking a 72.3% year-over-year increase [[5]].
- MELI is well-positioned to boost its business by further penetrating the e-commerce and fintech markets in Latin America [[5]].
- Wall Street analysts have a Strong Buy rating on MELI [[5]].
Square (Block)
- Square (SQ) is a financial services company with two primary ecosystems: Square (used by merchants) and Cash App (a peer-to-peer payment solution) [[6]].
- SQ acquired Afterpay to capture the demand for the Buy Now, Pay Later functionality [[6]].
- SQ's recent Q2 earnings showed a decline in revenue and earnings, but the company expects its overall gross profit growth rate to improve based on encouraging trends [[6]].
- SQ is focusing on boosting its international business and launched 44 products in the first half of the year [[6]].
- Wall Street analysts have a Strong Buy rating on SQ [[6]].
Please note that the information provided is based on the article you shared, and I have cited the relevant sections accordingly.
