Fintech stocks have been getting hammered in November — could it be an opportunity for investors to scoop up more shares at a discount?
Nov. 24, 2021
Fintech has been one of the most lucrative sectors of 2021, with investments reaching over $91.5 billion so far — that’s double the amount invested in 2020. In Q3 alone, 42 companies in the space hit unicorn status, a title used to describe a startup valued at over $1 billion.
So why are fintech stocks falling?
Commentary from prominent investors has come out recently describing a frothy environment, with some expecting stocks in the sector to continue falling further until things stabilize.
Concerns over inflation and potentially rising interest rates are other elements affecting outflows in fintech, as investors move into more well-capitalized businesses that can weather macroeconomic impacts. Rising interest rates won’t help businesses in high-growth mode that need access to capital and in some cases, it could affect returns on their core products, whereas some bigger players with large cash piles won’t face this issue.
Additionally, traditional banks that have been out of style, but they still account for the majority of all accounts. Many, such as Wells Fargo and JP Morgan, have been adjusting their strategy to the digital economy by closing branches and reducing headcount to keep up with these newcomers.
Why it doesn’t matter
There’s a reason for the high valuations, particularly with small to mid-cap fintech stocks. The global fintech market was valued at $5.5 trillion in 2020, and it is expected to grow at a 23.5% compound annual growth rate (CAGR) until 2025.
The COVID-19 pandemic has accelerated growth even further, and the trend is clearly visible; roughly 6% of U.S. citizens (over 14 million people) now use digital banking only for their money management, with this figure likely to increase over time.
Tech-native companies also still have the upper hand as they don’t have the same change management issues that older institutions face. Many are leveraging AI and machine learning capabilities, lower staffing costs, personalization, and higher-quality user interfaces, all accessible through simple mobile apps, to the favor of a younger demographic.
Performance of FinTech (one month)
These are some of the names that have been hit the hardest over the last month that investors may want to keep an eye on.
Paypal(NASDAQ: PYPL) (-21%)
Square(NYSE: SQ) (-16%)
Affirm (NASDAQ: AFRM) (-17%)
SoFi (NASDAQ: SOFI) (-13%)
Upstart(NASDAQ: UPST) (-42%)
StoneCo(NASDAQ: STNE) (-52%)
Fiserv (NASDAQ: FSRV) (-12%)
Paysafe (NYSE: PSFE) (-52%)
If you’re interested in learning more about these stocks, you can type any of the names in the search bar on our blog, or you can check in-app for MyWallSt’s picks and our analyst’s commentary on the fintech space.
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