Financial Technology, or Fintech, refers to using technology to enhance or automate financial services. Fintech has grown rapidly since the pandemic, as it has made our lives easier by making financial services more accessible, efficient, and affordable.
Conventional financial companies Visa Inc. (V) and Mastercard Incorporated (MA) are now leading the charge by bringing exciting innovations in fintech. However, not all financial companies have been able to capitalize on the industry’s growth. SoFi Technologies, Inc. (SOFI) failed to keep up and is struggling to stay afloat. So, while investing in V and MA could be wise, I am extremely bearish on SOFI.
Before diving deeper into the fundamentals of the stocks, let’s discuss what’s happening in the fintech space.
Fintech companies provide a wide range of services, including mobile payments, online lending, digital banking, digital wallets, and wealth management. Traditional financial companies are lagging behind their innovative fintech counterparts as they are offering faster, more affordable digital financial services.
With the proliferation of smartphones and the internet, the number of people adopting digital financial services is rising rapidly. Fintech companies also use cutting-edge technologies like artificial intelligence (AI), blockchain, and machine learning to improve their services.
The global fintech market is expected to grow at a CAGR of 19.5% to reach $556.58 billion by 2030. Investors’ interest in fintech stocks is evident from the ARK Fintech Innovation ETF’s (ARKF) 19.8% returns year-to-date.
Let’s discuss the fundamentals of the featured stocks.
Visa Inc. (V)
V is a global payments technology company that enables digital payments between customers, merchants, financial institutions, enterprises, strategic partners, and government agencies. It also administers VisaNet, a transaction processing network that allows for the authorization, clearing, and settlement of payment transactions.
On December 14, 2022, V pledged to invest $1 billion in Africa over the next five years to advance resilient, innovative, and inclusive economies across the continent. V’s entry into Africa will help capitalize on the rise in digital payments.
V’s 50.95% trailing-12-month net income margin is 96.8% higher than the 25.89% industry average. Likewise, its 67.06% trailing-12-month EBIT margin is 203.1% higher than the 22.12% industry average. Furthermore, the stock’s 50.66% trailing-12-month levered FCF margin is 201.7% higher than the 16.79% industry average.
V’s net revenues for the second quarter ended March 31, 2023, increased 11.1% year-over-year to $7.99 billion. Its non-GAAP net income rose 14.3% year-over-year to $4.38 billion. Also, its non-GAAP EPS came in at $2.09, representing an increase of 16.8% year-over-year.
Analysts expect V’s EPS and revenue for the quarter ending June 30, 2023, to increase 6.6% and 10.7% year-over-year to $2.11 and $8.06 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 13% to close the last trading session at $226.98.
V’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Consumer Financial Services industry, it is ranked first out of 48 stocks. It has an A grade for Quality and a B for Stability and Sentiment. Click here to see the other ratings of Growth, Value, and Momentum.
Mastercard Incorporated (MA)
MA is a technology company that provides transaction processing and other payment-related products and services. It facilitates the processing of payment transactions, including authorization, clearing, and settlement, as well as delivers other payment-related products and services. The company offers integrated products and value-added services for account holders, merchants, financial institutions, and businesses.
On April 5, 2023, MA announced that it was accelerating efforts to remove first-use PVC plastics from payment cards on its networks by 2028. This move reinforces the company’s sustainable efforts.
MA’s 42.33% trailing-12-month net income margin is 63.5% higher than the 25.89% industry average. Likewise, its 60.20% trailing-12-month EBITDA margin is 181.5% higher than the 21.38% industry average. Furthermore, the stock’s 0.60x trailing-12-month asset turnover ratio is 199% higher than the 0.20x industry average.
For the first quarter ended March 31, 2023, MA’s net revenue increased 11.2% year-over-year to $5.75 billion. Its net cash provided by operating activities increased 7.7% year-over-year to $1.92 billion. The company’s adjusted operating margin came in at 58.2%, compared to the adjusted operating margin of 57.5% in the year-ago period.
Its non-GAAP net income declined marginally year-over-year to $2.68 billion. Also, its non-GAAP EPS came in at $2.80, representing an increase of 1.4% year-over-year.
For the quarter ending June 30, 2023, MA’s EPS and revenue are expected to increase 17.1% and 12.5% year-over-year to $3 and $6.18 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 17.6% to close the last trading session at $376.03.
MA’s POWR Ratings reflect this positive outlook. MA has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Stability, Sentiment, and Quality. Within the same industry, MA is ranked #2. To see the other ratings of MA for Growth, Value, and Momentum, click here.
SoFi Technologies, Inc. (SOFI)
SOFI provides various financial services. It operates through three segments: Lending, Technology Platform, and Financial Services. The company offers lending, financial services, and products, allowing its members to borrow, save, spend, invest, and protect money. It also offers personal loans, student loans, home loans, and related services.
SOFI’s trailing-12-month net income margin of negative 14.68% compares to the 25.89% industry average. Likewise, its trailing-12-month Return on Common Equity is negative 5.46% compared to the 11.06% industry average. Furthermore, the stock’s 0.10x trailing-12-month asset turnover ratio is 52.1% lower than the 0.20x industry average.
SOFI’s total noninterest expense rose 15.5% year-over-year to $508.22 million for the first quarter ended March 31, 2023. Its net loss narrowed 68.8% year-over-year to $34.42 million. Also, its loss per share narrowed 64.3% year-over-year to $0.05. In addition, its total noninterest income from the Lending segment declined 14.2% over the prior-year quarter to $136.03 million.
Analysts expect SOFI’s EPS for the quarter ending June 30, 2023, to remain negative. Over the past three months, the stock has declined 36.5% to close the last trading session at $4.91.
SOFI’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system.
It is ranked #86 out of 100 stocks in the Financial Services (Enterprise) industry. It has an F grade for Stability and a D for Value and Quality. Click here to see the other ratings of SOFI for Growth, Momentum, and Sentiment.
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V shares fell $226.98 (-100.00%) in premarket trading Wednesday. Year-to-date, V has gained 9.46%, versus a 7.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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