A September 2020 study shows that almost half of global consumers expect a cashless world by fiscal 2030. It’s not surprising that fintech stocks have been in focus and have surged in the last year.
There is more data to support the big change in trend, which is likely to sustain in the coming decade. Last year, mobile wallet use exceeded cash for in-store payments for the first time ever. Many believe that digital wallets will come to dominate e-commerce by FY2024.
If we look at the broader picture, the rising adoption of cryptocurrencies has also supported the push toward a cashless society. China has already created its own digital currency, which is the first for any major economy. Sweden is also likely to have a digital currency within the next five years.
These trends are positive for fintech companies and most companies are still at an early growth stage. I would therefore not hesitate in having one or more of these fintech stocks in your core portfolio.
Let’s talk about four fintech stocks that look good for long-term exposure.
4 Fintech Stocks for a Cashless World: Paysafe (PSFE)
PSFE stock was recently listed through a special purpose acquisition company (SPAC) business combination. The fintech stock looks attractive from a long-term investment perspective at current levels around $13.50.
Paysafe is a specialized payments platform with payment processing, digital wallet and online cash solutions.
The company recently expanded its crypto offering in the United States with Coinbase (NASDAQ:COIN), which was designed to help people buy, sell and track cryptocurrencies. With the growing adoption of cryptocurrencies, the company seems to be moving in the right direction.
Paysafe is also a good proxy for exposure to the high-growth iGaming industry. The company claims to be the global market leader in iGaming payments. Paysafe’s iGaming e-cash network is already in use in more than 50 countries. Currently, the company derives 36% revenue from iGaming commerce.
From a financial perspective, Paysafe is positioned to deliver revenue of $1.52 billion in the current year. The company also expects an adjusted EBITDA margin of over 30%. Furthermore, the company expects revenue growth of over 10% in the next two years.
Overall, Paysafe has a diversified business in terms of payment processing, wallets and eCash. The company is also building a global presence. With a business model that can potentially generate robust cash flows, PSFE stock is among the stocks to buy in the fintech segment.
Even with valuation concerns, SQ stock has remained in an uptrend. The stock currently trades at a forward price-to-earnings ratio of 214.6. While it makes sense to be cautious, some exposure can be considered even at current levels.
The Cash App is a key reason for the company commanding premium valuations. From three million active customers in December 2016, the active users have swelled to 36 million as of December 2020.
It’s also worth noting that Cash App generated a gross profit of $377 million for the fourth quarter of 2020. On a year-on-year basis, gross profit surged by 162%.
Given the growth in active users, Cash App has the potential to be a cash cow for the company. In FY2020, more than three million customers purchased or sold Bitcoin (CCC:BTC-USD) on Cash App.
Just for January 2021, more than one million customers purchased Bitcoin for the first time. With the rising adoption of cryptocurrencies, the company seems well-positioned to benefit.
It’s worth noting that the seller ecosystem represents an $85 billion market opportunity in the United States. This leaves room for strong growth over the next few years for the seller ecosystem segment, which has seen relatively muted growth.
Overall, Square has witnessed strong revenue growth and the Cash App is likely to ensure that the company’s EBITDA margin continues to improve. SQ stock is therefore among the top fintech stocks to consider.
Fintech Stocks: Adyen (ADYEY)
ADYEY stock is another interesting name among fintech stocks. The stock has surged by 178% in the last year but still looks attractive for further upside.
Ayden offers a global payments platform with integrated gateway, risk management, processing, acquiring and settlement services. For FY2020, the company reported revenue of $823.6 million and an EBITDA of $484.6 million.
This implies a health EBITDA margin of 59%. The company is targeting an EBITDA margin of 65% in the future. Therefore, Adyen seems well-positioned to deliver healthy free cash flows.
Another important point to note is that the company reported strong net revenue growth of 70% in North America. With its presence in the Asian Pacific and Latin America markets, the company seems well-positioned to sustain healthy top-line growth. Adyen has guided for mid-twenties and low-thirties revenue growth in the medium-term.
In another growth triggering development, Adyen and Afterpay (OTCMKTS:AFTPF) have partnered to offer a “buy now, pay later” service to retailers. The BNPL market is still at an early growth stage and Ayden is likely to benefit from a global presence.
Overall, with strong growth in North America, global presence and a robust EBITDA margin, ADYEY stock is worth holding.
STNE stock gives investors exposure to a fintech company with a focus on Brazil. In February 2021, the stock touched a high of $95.10 before correcting to around $68 today.
UBS analyst Mariana Taddeo has a price target of $87 for the stock. This would imply an upside of nearly 30% from current levels.
The company’s fintech-as-a-service platform, Pagar.me, is for digital small businesses as well as large retailers. Further, the company has an array of software solutions and the number of subscribed software clients have been trending higher on a sustained basis.
For FY2020, the company reported revenue of $594 million, which was higher by 28.9% year-over-year. Further, the company had 652,600 active clients. The company has guided for more than one million active clients in the current year. It’s therefore likely that strong top-line growth will sustain.
It’s also worth noting that for FY2019, the company’s adjusted free cash flow was $74.4 million. For last year, adjusted FCF increased to about $117 million. Clearly, the business has the potential to deliver robust margins and cash flow.
Overall, StoneCo is on a healthy growth trajectory. Even with the significant pandemic impact in Brazil, growth remained resilient in FY2020. I wouldn’t be surprised if top-line growth accelerates further in the coming years.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.