Written by: Joshua Rodriguez
From the way that we read to the way that we order goods, drive, or even invest, technology has led to an evolution in the way that we do just about everything.
Perhaps nowhere is the effect of technology on our day to day lives more apparent than in the world of finance. Today, we look to mobile apps for budgeting tips, manage our financial accounts on computers, tablets, and phones, and send money to friends with the click of a button.
As the world of financial technology, or simply FinTech, continues to evolve, opportunities are being created in the stock market. Here are the FinTech investment opportunities that I believe offer up the most potential for investors.
Square (NYSE: SQ): Looking Beyond Payment Processing to Add Value
One stock I’m watching closely is Square SQ[NYE] – $67.95 . Co-founded and led by Jack Dorsey, also CEO of Twitter TWTR[NYE] – $40.05 , Square gets quite a bit of attention from the investing community.
When investors think about Square, the first thing that tends to come to mind is mobile payments, and for good reason. By late 2011, the company announced that one out of every eight merchantsthat accept credit cards uses its platform. Since then, the figures have grown dramatically. Today, millions of merchants are using the company’s technology to process payments.
Nonetheless, while payment processing is big business, it’s not the only value that square brings to the table. In late-December, the company issued an SEC filing disclosing its intentions to launch a wholly-owned bank.
This was an important move. Investors already know the power of Square in the payment processing space. After all, the company was the pioneer of card readers that could be plugged into mobile devices for payment processing.
Nonetheless, payment processing fees are pretty small. So, the fact that the company is branching into more traditional banking services gives it the ability to expand margins, further providing value for investors.
Square has also consistently shown growth on a quarter over quarter and year over year basis. This growth can be seen clearly in the company’s most recent earnings report. Adjusted revenue came in at $489 million, a 59.3% year over year increase. Adjusted earnings came in at $0.11, showing strong growth from $0.06 year over year. The company also beat analyst expectations, which called for revenue of $479.6 million and earnings of $0.08 per share.
While the market reacted by sending the stock down due to guidance suggesting that growth will slow a bit, the company is expecting to generate between $545 and $555 million in the second quarter. Nonetheless, the guidance still suggests more than 11% revenue growth on a quarter over quarter basis.
With a proven history of strong revenue growth, a leadership position in mobile payment processing and a shift to more traditional services, I believe that Square has the potential to yield compelling gains for investors.
Green Dot (NYSE: GDOT): A Winning Model of Addressing the Excluded Audience
Green Dot GDOT[NYE] – $65.81 is a different kind of FinTech play. Instead of focusing on low-margin payment processing as a core business like what we see with Square and PayPal PYPL[NGS] – $110.07 , the company addresses the audience that has been excluded from the industry.
Green Dot is focused on providing banking services and financial technology for a large population that either doesn’t have access to or can’t qualify for a bank account. The company has developed alternatives to the traditional banking system that includes direct deposit to linked accounts as well as access to a mobile banking app to better track spending.
Some may argue that the company is tailoring its services to the wrong population. After all, huge profits aren’t what we generally think of when we think about the population with poor credit and limited income.
Nonetheless, the simple fact that the company has addressed this population with success is one of the reasons to consider the stock. After all, the potential audience is an incredibly large one, with more than 18% of the American population being underbanked.
Finally, it’s worth mentioning that the company is getting the attention of big partners. The company’s GoBank mobile checking technology platform has partnered with Uber to offer drivers easier access to cash while they wait on transactions to clear. The company’s technology has also been chosen by Apple AAPL[NGS] – $207.60 to power its person-to-person Apply Pay Cash transfers.
Green Dot is addressing an underserved market and finding success in doing so. This, combined with the company’s technology catching the attention of important companies like Uber, Apple, and others, further validates the work the company is doing. I believe that the stock will see further growth ahead.
Mogo Finance Technology (NASDAQ: MOGO): A Highly Undervalued Player in Canadian FinTech
Mogo Finance Technology MOGO[NSC] – $3.56 is one of the largest FinTech companies in Canada. The company’s claim to fame is its app, known simply as Mogo (which means Money-On-the-GO), that unlocks the door to money management tools, an easy entrance into cryptocurrency, and more. There are several reasons that I’ve found interest in Mogo.
First and foremost, the company’s valuation is just under $90 million. With 800,000 members, that puts its per-member value at about $112. This compares to US and European companies like Chime and N26 that recently raised funds with billion dollar-plus valuations, putting their per-member values at around $500 and $1,174, respectively.
Moreover, Lightspeed LSPD:CA[TSX] – $24.68 0.43 (1.71%), another Canadian FinTech that recently went public, has very similar metrics including revenue scale and growth rate. The only real metric with a very big difference is market cap. Lightspeed has a market cap of about C$2 billion (US$1.48 billion). Comparing that to Mogo’s market cap of just under $90 million puts the undervaluation into perspective.
It’s also worth mentioning that FinTech adoption by Canadians is far behind the curve. Reports have shown that under 20% of Canadian consumers have adopted FinTech products and services. Experts also suggest that the adoption rate could climb to 51% in the future. This opens the door to a large, untapped market for Canadian FinTech leaders like Mogo.
Finally, there are not many competitors with which Mogo needs to compete as the Canadian FinTech audience continues to grow. There are only about a half dozen realistic competitors in Canada, giving the company a large, open opportunity to capitalize on the increasing hunger from millennials for technological solutions to their financial questions. Only WealthSimple rolls off the tongue. After a bit of research, I was able to find Borrowell and Koho, but these options are minnows compared to the big fish that is Mogo.
Mogo is addressing a largely untapped Canadian audience with proven success. At the same time, the company is highly undervalued compared to its peers. Moreover, the company recently announced a merger with Difference Capital DCF:CA[TSX] – $4.89 0.02 (0.41%). Through this merger, the company greatly improved its balance sheet and financial resources as Difference brings C$34 million of Cash and monetizable assets to Mogo’s existing $20 million of cash that it reported at year end.
As Mogo continues to grow its member base, which already exceeds 800,000, it could ultimately be acquired by one of Canada’s major banks looking to fend of competition from global fintechs like PayPal or even tech giants like Apple, who recently announced they were getting into the sector with the launch of their Apple Card.In order to understand the potential for Mogo in a scenario like this I think ING Direct Canada is a great case study.
Early on, as FinTech emerged, ING Direct started to incorporate technology with banking, becoming one of the first banks in Canada to bring mobile banking through, at the time, new technologies. After growing to 1.8 million customers in Canada, they were acquired by Scotiabank BNS[NYE] – $53.86 for over C$3 billion and that was back in 2012. Mogo’s innovation is leading to strong growth among Canadian users, with Craig-Hallum expecting that the company will grow its user base to 1.5 million by 2021. Considering this, MOGO comes with a high level of upside potential.
I believe that Mogo, which has started to show strong momentum since the announcement of the Difference transaction, has a bright future.
Visa (NYSE: V): An Established Leader Evolving with Technology
When you think about FinTech investments, Visa V[NYE] – $160.94 may not be the first company that comes to mind. After all, the company has more than a $350 billion market cap, is a component of the Dow Jones Industrial Average, and was founded in the 1950s before FinTech was even considered as an investment theme.
The company should actually be considered the pioneer in the space and remains the #1 company when it comes to cashless payments. Visa accounts for more than half of all credit-card processing in the country.
Moreover, Visa’s leadership in FinTech goes far beyond credit card purchases. After all, mobile payment technology is the natural evolution in the space at the moment, and the company isn’t planning on lagging behind.
In 2018, Visa extended its global partnership with PayPal. Their partnership surrounds digital and mobile payments. The company has also made investments in mobile payment technology companies like Square and Stripe. Most recently, the company made an investment in Earthport, a company that has been involved in the cryptocurrency and blockchain space since 2015.
At the end of the day, Visa is a safe bet. Known for providing stable gains in value and one of the largest companies in the world, Visa is a great bet for the risk-averse investor that’s looking to make a break into the FinTech space.
Intuit (NASDAQ: INTU): A FinTech with Control in Its Niche
Finally, we have Intuit INTU[NGS] – $246.63 . Most known for its QuickBooks and TurboTax products, Intuit was one of the first companies to mix technology with finance, offering an intuitive, yet simplified accounting experience.
The company has done so with incredible success as well. It is estimated that about 8 million people used the company’s TurboTax software to file their tax forms in 2018.
As one of the first major successes in FinTech, Intuit offers the strength and stability that comes along with having a household name. However, there’s value far beyond the fact that the company’s name is recognized among a massive audience.
One of the factors about Intuit that makes it such a compelling investment opportunity is that the company is looking to expand beyond accounting and tax submissions. The company is spending billions of dollars to stay ahead of the FinTech evolution.
To put their spending into perspective, just look at the research and development spending in 2018. During that fiscal year, the company spent $1.2 billion in an effort to stay in the lead and provide more innovative products in the space.
This spending has led to an entrance into the gig economy and other niches within the FinTech space. Most recently, the company launched QuickBooks Capital, a subsidiary that is now issuing tens of millions of dollars in loans and generating revenue through interest and other fees.
Anything Intuit does seems to turn out to be a success. The company is known for generating strong profits quarter after quarter as a result of its leadership in various areas in the FinTech space. Moreover, Intuit continues to innovate, giving it what it needs to stay on top. This stock represents an opportunity for compelling growth ahead.
There are tons of investment options in the FinTech sector. As with any other sector, however, there are some clear winners and clear losers. In my opinion, the stocks mentioned above offer the most compelling opportunities to take advantage of the growth in the space.
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