A List Of Quality FinTech's (And My 3 Favorite)
PYPL SOFI NU
Hi all👋
This week we are focused on the fintech industry. There’s a lot of competition there and I think it’s a very exciting industry to research at all times but especially now.
I keep an Excel of 12 of my favorite fintechs and track numbers such as revenue growth and EV/Sales. See it below here👇
Out of this list I decided to focus on my 3 favorites, 2 of which I’ve spoke about previously but I thought it’d be good to give an update on them. The 3 I’ve chosen are:
Paypal (PYPL)
SoFi (SOFI)
NuBank (NU)
This list includes a high multiple, high growth company (NU), a potential turnaround story (PYPL), and a high growth but currently unloved by the market (SOFI). Let’s look into each of them:
PayPal (PYPL)
Company: PayPal
Ticker: PYPL
Website: https://investor.pypl.com/home/
Current Stock Price: $81.63
52-Week High: $81.78
52-Week Low: $50.25
Market Cap: $82.97 billion
Headquarters: San Jose, California
Number of Employees: 27,200
Numbers
Revenue growth: 8.21%
Gross profit margin: 40.23%
Net profit margin: 14.31%
EV/Sales: 2.6x
Commentary
Fundamentally, PYPL has proved this year that they are far from a “dying business”. The numbers obviously lag slightly behind the actual developments that are happening at PYPL this year, but still 2024 has seen some very positive earnings reports. Here’s a quick summary of the improvements we’ve seen in the data to start:
Active accounts are trending upwards again after declining QoQ from Q4 2022.
6.58 billion transactions processed compared to 6.07 billion last year.
Total payment volume (TPV) increased 10.7% YoY.
Net income grew ~$100 million.
Although these aren’t groundbreaking improvements, they are changes to the trend which is really important. More importantly for me, I believe this new trend is going to last for a long period looking at what has been happening within PYPL in 2024.
Firstly, Alex Chriss and his team have done an incredible job recently of forming some more strategic partnerships which are aimed at expanding PYPL’s reach across different markets. Here they are:
Apple Pay: PYPL partnered with Apple Pay to allow Venmo (and PayPal) users to make payments through the AAPL ecosystem. PYPL have struggled to expand their presence in the mobile payment market, especially amongst the younger consumers so this was a good partnership.
Amazon: PYPL teamed up AMZN allowing PYPL payments to be used with Prime for independent merchants. This is nothing to do with AMZN’s main marketplace yet, but it of course expands their reach now and maybe in the future there is potential for a further partnership with AMZN.
Adyen: PYPL expanded their partnership with Adyen through Fastlane. This is a nice little catalyst for some growth for Fastlane coming into late 2024 and the start of 2025.
Further, we have the process of Venmo monetization, Xoom focus, advertising, mobile checkout improvement, and Fastlane which really haven’t had time to be reflected in the data yet. But what do we know so far?
We know Braintree has seen growth of 19%. Not something to massively boast about but management are shifting focus from simply gaining market share to really emphasizing the value proposition that Braintree has to offer. This will allow for a much more sustainable path of growth forward.
Moving on to Venmo which processed $70 billion over the last quarter but has an awfully low take rate. Whilst monetization has yet to really improve, I do see a path forward and I think it is perhaps PYPL’s goldmine if things play out like management expect. Partnerships with merchants like AliExpress, eBay, and debit cards in Apple wallets all offer some nice signs for stronger monetization and higher take rates. Management have already noted a 30% increase in Venmo users with a debit card so there’s early data suggesting this is moving in the right direction. As Alex Chriss said, “we are only touching the surface of its [Venmo’s] potential.”
In terms of Xoom, FastLane, and the advertising business, I don’t have too much more information to add on to what I have said in previous posts so I’ll leave it for now until I can offer more details on those. I think all have some huge potential though.
Graphic
PYPL is a dying company, huh?
SoFi Technologies (SOFI)
Company: SoFi
Ticker: SOFI
Website: https://investors.sofi.com/overview/default.aspx
Current Stock Price: $8.59
52-Week High: $10.59
52-Week Low: $6.01
Market Cap: $8.96 billion
Headquarters: San Francisco, California
Number of Employees: 4,400
Numbers
Revenue growth: 20.93%
Gross profit margin: 81.31%
Net profit margin: 2.96%
EV/Sales: 3.8x
Commentary
SoFi has to be one of the most frustrating stocks to own because fundamentally I absolutely love it, but the stock price so far has been awful. Comparing to other fintechs like Robinhood or Affirm the returns are between 150%-300% less. Arguably life changing differences in returns. Yet, I still believe SoFi is a stronger company than those aforementioned, and many other fintechs.
The market clearly hasn’t appreciated some of the catalysts that SoFi has seen so far such as GAAP profitability or rate cuts, but the good news is I think there’s a ton more catalysts coming.
We are quickly approaching one full year of GAAP profitability. This may not seem too important but many investors now will no longer be able to look to any trailing numbers that indicate a lack of profitability at SOFI. The profitability issue up until 2024 was one of the biggest bear cases for SOFI. That is now long gone.
Secondly, rate cuts have been delayed considerably. Most of the market predicted rate cuts happening in Q1 or early Q2 but this didn’t happen. With this macro instability and uncertainty has come a shrinkage in the lending platform. Noto has consistently said that they’ll really push this segment when macro conditions (recession fears and rate cuts) were more clear. I believe we are slowly getting to this time and I expect a lot of analysts to massively underestimate the lending segment in Q3 and Q4.
Another key point I want to touch on is the financial services division which has been carrying the entire SOFI business growth over the last 18 months or so. The good news is I don’t see this growth stopping anytime soon in the financial services sector. There’s tons of avenues that management can go down and Noto knows this. He’s said a few times that brokerage businesses or credit card businesses could be bigger than the entire SOFI business today. Management are investing heavily into credit cards now but there’s potential in investment banking, insurance, asset management etc.
Overall, I think SOFI is approaching an exciting time. The fundamentals are all looking strong, and I believe more and more investors will start to notice this in the data soon.
Graphic
Everything trending well…apart from the stock price. Good investors focus on the fundamentals.
Nu Holdings (NU)
Company: Nu Holdings
Ticker: NU
Website: https://www.investidores.nu/en/
Current Stock Price: $13.33
52-Week High: $15.16
52-Week Low: $7.68
Market Cap: $64.51 billion
Headquarters: Sau Paulo, Brazil
Number of Employees: N/A
Numbers
Revenue growth: 76.43%
Gross profit margin: 100.00%
Net profit margin: 33.31%
EV/Sales: 12.9x
Commentary
One of Buffett’s stocks, NU is a Brazilian digital banking platform which also currently operates in Mexico and Colombia. I think the opportunity for NU is massive due to the LatAm population lacking any digital banking relationship with any financial institution. NU is coming to take all of this space.
There’s a lot of investor hype around the company at the moment with growth remaining high, profitability, and EPS expected to almost double. This has all led to a pretty high multiple at 12.9x, although this isn’t unjustified at all when you look at the revenue growth, TAM, and margin expansion over the last 12 months.
The latest data we have is that NU serves 56% of the adult population in Brazil, 8% in Mexico, and 2.1% in Colombia. There’s still huge room for growth across all countries as LatAm continues to digitalize. This future TAM (specifically in Mexico and Colombia) is obviously is part of my bullish thesis, but to make this a long term sustainable investment, we really need to focus on how successful NU is at monetizing the existing customer base through cross-selling and upselling.
Currently each NU customer uses ~4 products but we are seeing some nice growth rates here with newer customers signing up for more products like bank accounts, credit cards, investment accounts, and insurance for example. If NU can continue to see this number rise we’ll continue to see growing ARPAC (average revenue per active customer) which is a KPI many investors follow with NU. The reason this is so important to investors is because it means NU is no longer only relying on new customers for growth. If ARPAC can grow in line with customer numbers, NU has a very bright future.
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That’s it for the day
I hope you loved this article. As I continue to develop on here, I’m sure there will be some changes to my structure and style, so please do leave some feedback for me.
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