3 Fintech Stocks Ready to Capitalize on the Next Crypto Rally
In finance, three fintech stocks have been setting the stage for the next phase of fintech evolution. These companies exemplify the vibrant energy and adaptability within the financial sector, serving as prime examples of innovation. The first stock enjoys a double gross profit surge, and the second one, which leverages acquisitions’ impact on international market dominance, stands as strategic brawn. Meanwhile, the third stock’s impressive growth in gross profit and diversified revenue streams further amplify the fintech narrative.
These three fintech stocks share a common focus on leveraging digital assets and cryptocurrencies as part of their strategic expansion. They aim to integrate crypto-related services, facilitate transactions, and offer products to capitalize on the growing demand for digital currencies and blockchain technology. Read more to learn how each company is leveraging its strengths to build growth.
Fintech Stocks: Nu (NU)
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To begin with Nu’s (NYSE:NU) bottom line, gross profit doubled year-over-year in Q3 2023. This growth signifies its ability to manage operational costs while monetizing its services efficiently. Also, the increase in gross margin to 43% suggests the company’s improved solid operational efficiency on an absolute basis. Nu’s focus on maintaining healthy margins despite market challenges reflects a robust business model capable of sustaining profitability.
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On the product side, Nu establishes primary banking relationships with nearly 60% of its active customer base, demonstrating its proficiency in cross-selling products. The correlation between primary banking relationships and increased product utilization emphasizes Nu’s ability to capitalize on customer engagement to drive revenue growth. Further, the company’s strategy of introducing new products and effectively cross-selling them to existing customers aligns with its goal of becoming the preferred banking partner for its customers.
Fundamentally, Nu has attained a monthly average revenue per active customer (ARPAC), reaching double digits at $10. Notably, the mature cohorts achieved a monthly ARPAC of $26 as of Q3 2023. This development highlights the compounding effect of expanding customer engagement and successful product cross-selling initiatives. Thus, consistent growth in ARPAC demonstrates the company’s capability to increase revenue per customer.
Finally, Nu’s approach to low-and-grow credit expansion has resulted in substantial portfolio growth, demonstrating its ability to manage credit offerings effectively. Nu’s focus on interest-earning installment balances, constituting 21% of the total credit card loan portfolio, highlights its strategic approach towards transactional financing products like PIX financing in Brazil. Therefore, this deliberate strategy aims to capitalize on market trends and reinforce Nu’s position as a leader among PIX service providers.
PayPal (PYPL)
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PayPal’s (NASDAQ:PYPL) is experiencing rapid growth in its performance metrics. During Q3 2023, there was a reported total payment volume (TPV) growth of 15% at the spot and 13% growth on a currency-neutral basis. This growth trajectory suggests the company’s ability to facilitate a higher volume of transactions. The growth was primarily powered by Braintree, a significant driver of PayPal’s transactional expansion.
Examining the relationship between TPV growth and Braintree reveals its substantial impact. The subsidiary has been pivotal in driving transactional volumes within PayPal’s ecosystem. Furthermore, the disparity between international (19% currency neutral) and U.S. TPV growth (10%) emphasizes the platform’s success in international markets, indicating a potential growth frontier beyond domestic borders. It is one of my top picks when it comes to fintech stocks.
Fundamentally, the surge in TPV substantiates the company’s potential to tap into evolving markets and expand its user base. Beyond TPV, PayPal’s global branded checkout volumes saw 6% growth on a currency-neutral basis. The fluctuating growth rates in branded checkout volumes suggest varying consumer behaviors or market dynamics.
The initial spike to 8% growth in July, followed by a moderation in growth rates, indicates potential seasonal or situational influences impacting consumer preferences. Furthermore, stabilization in branded trends during Q4 2023, tracking in line with the year’s first half, indicates a return to more consistent growth patterns.
Finally, PayPal showcased impressive operating expense leverage, with a decline of 12% in non-transaction-related operating expenses. However, transaction margin dollars declined by 3.5% to $3.4 billion, while non-transaction margin compression was mitigated by operating expense leverage.
Block (SQ)
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Block’s (NYSE:SQ) fundamental strengths are emerging in bottom-line growth. Firstly, there is a 21% year-over-year surge in gross profit during Q3 2023. This is based on an expanded user base and improved pricing strategies. In adjusted EBITDA, the company attained the highest-ever adjusted EBITDA of $477 million, which translates to a 25% margin on gross profit, indicating operational solid efficiency and effective cost-control measures contributing to profitability.
Moreover, the adjusted operating income experienced a notable increase (nearly 2X) from $32 million to $90 million. This signifies enhanced profitability, potentially driven by optimized cost structures and improved revenue streams.
On the liquidity front, there is a significant rise (nearly 4X) from $88 million to $427 million in the quarter, and $945 million over the last 12 months demonstrates robust cash flow generation. Thus, this improved cash position signifies enhanced operational efficiency and better management of working capital.
Looking at the segments, Square Performance is associated with a 15% year-over-year increase in gross profit, showcasing steady growth. The 11% growth in Square’s Gross Payment Volume (GPV) and improved performance in vertical points of sale and banking products highlight diversified revenue streams and product innovation. Similarly, Cash App Performance represents a substantial 27% year-over-year growth in gross profit. Furthermore, the growth in monthly transacting actives and inflows per transacting active highlights sustained user engagement and monetization strategies.
Finally, the projected Q4 gross profit is between $1.96 billion and $1.98 billion, indicating 19% growth at the midpoint, reflecting the anticipated sustained growth momentum. For the long term, focusing on achieving Rule 40 by 2026 with mid-teens gross profit growth and an approximately mid-20% adjusted operating income margin showcases a balanced approach toward growth and profitability. Thus, I believe it is one of the best fintech stocks you can buy.
As of this writing, Yiannis Zourmpanos held a long position in PYPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Yiannis Zourmpanos is the founder of Yiazou Capital Research, a stock-market research platform designed to elevate the due diligence process through in-depth business analysis.
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