Two noteworthy Fintech companies to consider investing in during January.
Fintech, the blossoming sector within the broader financial realm, is witnessing a meteoric rise. This sector's potential revenue, as suggested by BCG, could surge to a staggering $1.5 trillion by 2030. This explosive growth has made fintech a coveted area for competition among companies, vying to be at the forefront of innovative fintech services. Two such pioneers, well-positioned to leverage the fintech boom, are Sofi Technologies (SOFI 1.23%) and PayPal (PYPL 3.25%). Let's dive into why these companies are poised to flourish in the fintech landscape.
SoFi: The Fintech Titan
SoFi has been on an expansion spree, continuously growing its array of financial offerings, now encompassing loans, investing, checking and savings accounts, loan refinancing, credit cards, and even estate planning. This expansion is clearly reflected in SoFi's success: less than five years ago, they had 1 million members, with that number jumping to a staggering 10 million members by the end of 2020, indicative of a remarkable 9x membership growth.
This impressive member base has translated into impressive financial results for SoFi. The company witnessed a 30% surge in sales during the third quarter of 2024, totaling $697 million, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) skyrocketed by 90% to $186.2 million.
SoFi's successful trajectory isn't going unnoticed, with the stock recording a jaw-dropping 137% increase over the past six months, propelled by the premium for the shares, which now sit at a noteworthy forward price-to-earnings (P/E) ratio of 74. While this might seem expensive, long-term investors who desire a piece of fintech's future would find a small position in SoFi appealing.
PayPal: Don't Write Off the Established Fintech Giant
As investors explore fast-growing fintech companies, some might overlook the tried-and-true PayPal. Yet, this influential fintech player still has the potential for significant growth. PayPal's Venmo, its person-to-person payment app, is a prime example of the company's commitment to seeking new growth verticals. Venmo boasts an impressive following of 88 million users, up from 52 million back in 2020.
PayPal's third-quarter performance in 2024 is equally impressive, with revenue rising by 6% to $7.8 billion and non-GAAP earnings spiking up by a remarkable 22% to $1.20 per share. The company also concluded the quarter on a high note, boasting $1.4 billion in free cash flow and an impressive $16.2 billion in cash and cash equivalents.
PayPal's staggering 432 million global users underscore the company's powerful position in the fintech market. The 9% increase in total payment volume in Q3, to $422.6 billion, further demonstrates PayPal's ability to retain user engagement on its platforms.
With PayPal's shares touting a more modest forward P/E ratio of just 17.8—well below the S&P 500 average of 23.7—financially astute investors looking for relatively more affordable fintech stocks should seriously consider PayPal at the present time. It's essential to keep in mind that fintech stocks are typically prone to volatility, so new investors would be wise to start with a small position, inching their way up gradually as they become more comfortable with this budding investing segment.
In the context of SoFi's financial success, investing in their stocks could be an appealing option for long-term investors seeking a piece of fintech's future, given the company's rapid growth and high forward price-to-earnings (P/E) ratio of 74.
PayPal, with its low forward P/E ratio of 17.8 compared to the S&P 500 average, presents an opportunity for financially astute investors looking for relatively more affordable fintech stocks, given its large user base, substantial free cash flow, and robust third-quarter performance.