I/O Fund’s preview of 7 Fintech stocks for Q4 Earnings
February 11, 2022
Royston Roche
Equity Analyst
Fintech companies are disrupting the global economy with their innovative products. The global growth is expected to continue despite medium-term challenges like higher interest rates and Covid-19. We believe that the recent sell-off once again provides opportunities to pick stocks for the long term.
PayPal released its results earlier this month. Q4 revenue grew by 13% to $6.9 billion and beat estimates marginally by $30 million. The soft revenue guidance of 6% growth in Q1 disappointed investors. On the other hand, Dutch payment processor Adyen reported strong results as its 2H revenue grew by 47% to €556.5 million and EBITDA (Earnings before Interest, Tax, Depreciation, and Amortization) grew by 51% to €357.3 million.
In this earnings preview, we cover Upstart, Block, Coinbase, Sea Limited, MercadoLibre, Remitly, and DLocal. To understand valuations across the Fintech companies and how the sector is positioned moving into earnings, please refer to our analysis, “I/O Fund’s Fintech Q4 Earnings Overview.”
Upstart – Earnings on February 15th
Source: YCharts, Earnings Reports, and I/O Fund
The company’s revenue grew by 250% in Q3 and the analysts estimate revenue to grow 203% YoY to $262.85 million. Upstart has gained popularity due to its Artificial Intelligence lending platform, which saves time in loan processing. The management believes that the auto lending market is at least six times the personal loan market size and that customers pay higher interest rates for car loans. Last year, it bought Prodigy Software, an automotive retail software provider, which further helped the company focus on the auto loan market.
Atlantic analyst Simon Clinch has a price target of $170. He has an overweight rating on the stock as he believes that there is upside potential to EBITDA from the auto segment.
Piper Sandler analyst Arvind Ramnani has lowered the price target for the company to $223 from $300. He reset the price target in the vertical software and fintech stocks following the correction in the tech sector.
Block (Square) Inc – Earnings on February 24th
Source: YCharts, Earnings Reports, and I/O Fund
The company’s revenue grew 27% YoY to $3.84 billion. Analysts expect revenue to grow 28% to $4.05 billion. The company missed analysts’ revenue estimates by 14% and adjusted EPS by 3% in the last quarter.
It has completed the acquisition of Afterpay recently and has integrated Afterpay’s Buy Now Pay Later (BNPL) functionality to Square Online sellers in the U.S. and Australia. According to Grand View Research, the BNPL market is expected to reach $20.4 billion by 2028, growing at a compound annual growth rate of 22% from 2021 to 2028.
J.P. Morgan analyst Tien-tsin-Huang is optimistic about the deal and expects it to boost its gross profits. He also believes, "positive catalysts de-risking the hard/soft landing concern for stand-alone Cash App growth deceleration near-term."
Barclays analyst Ramsey El-Assal has lowered the firm's price target to $205 from $300. He has kept an Overweight rating on the shares. In his view, “While app download and usage data point to continued strength at Cash App and Square, the company continues to lap very tough COVID-related comps.” He also expects investor focus to be on the reacceleration of Cash App, the Afterpay acquisition, and Block's crypto initiatives.
Please note that the I/O Fund may or may not agree with the above financial analysts, yet we objectively report what the Street is saying. You may view our previous analysis of the company below:
Our lead analyst Beth Kindig had discussed two years back about the company’s high charges that would come under pressure from the blockchain in the long-term. Recently, she also discussed that the company’s name change from Square to Block was a defensive move rather than coming out of its strength.
Coinbase Global Inc – Earnings on February 24th
Source: YCharts, Earnings Reports, and I/O Fund
The company’s revenue grew by 316% to $1.31 billion in Q3. For Q4, analysts expect revenue to grow 235% to $1.96 billion. Due to better trading activity in October, the management believes that the retail Monthly Transacting Users (MTUs) will be higher in Q4 than Q3. For the month of October, it was 11.7 million.
Bank of America analyst Jason Kupferberg has upgraded the company from a neutral to buy rating. He is optimistic about the company launching the NFT trading platform, as it was diversifying its revenue sources to rely less on cryptocurrency trading.
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Mizuho analyst Dan Dolev believes that the zero-commission business model adopted by Robinhood is better than the fee-based model adopted by Coinbase. In his words, "If you think about three years from now, everything that's fee-based right now, like crypto trading, is going to be free."
You may view our previous analysis of the company below. We had also discussed Coinbase reporting lower revenue in Q3.
Crypto Trading Apps Coinbase and Robinhood Will Decline in Q3 --- but by How Much?
Why We’re Skipping Coinbase and Prefer Voyager Digital: Overview of Crypto Trading
Sea Limited – Tentative Earnings Date is 25th February
Source: Seeking Alpha, Earnings Reports, and I/O Fund
Sea Limited operates in three segments: digital entertainment, e-commerce, and digital payments & financial services. The company's revenue grew 122% in Q3 and the analysts expect revenue to grow 92% to $3.0 billion in Q4. The company derives its significant revenue from South East Asia, and more recently, it has been focussing on Latin America.
Barclays analyst Jiong Shao lowered the firm's price target to $218 from $427 and has kept an Overweight rating. He believes, “The post-COVID economic reopening is having a negative impact on both the company's gaming and e-commerce business as consumers spend less time online.”
Goldman Sachs analyst Miang Chuen Koh has removed the stock from the Goldman’s Conviction List. "While Sea (SE) remains on a growth path, with an expanding ecommerce footprint and its multiple studios finalizing games to be released in the next few quarters," the analyst cautions that the slower economic growth will limit the growth of its three business lines.
You may view our previous analysis of the company below.
Q1 Earnings Analysis for Etsy, Square, and Palantir
MercadoLibre Inc – Tentative Earnings Date is March 01st
Source: YCharts, Earnings Reports, and I/O Fund
The company’s revenues grew 67% in Q3 and the analysts expect Q4 revenue to grow 53% to $2.03 billion. MercadoLibre has been popularly known as the Amazon of Latin America. The company is benefitting from the region’s strong e-commerce and fintech growth. The stock rose about 450% in the past five years. MELI’s quarterly active users showed strong growth in Q3, growing 50% YoY to 78.7 million and unique Fintech users grew by 13% to 31.6 million.
Source: YCharts
Stifel analyst Scott Devitt lowered the price target on the company to $1,600 from $2,200 and has kept the Buy rating. He forecast GMV growth of 26% to $7.71 billion and revenue estimate of $2.09 billion for the next quarter, slightly ahead of consensus. However, as the comparable valuation multiples of the company's publicly traded peers have declined, he has lowered his price target.
Jefferies analyst John Colantuoni has downgraded the company to Hold from Buy with a price target of $1,250, down from $2,000. He makes a note that the heightened macro uncertainty in Brazil, which represents 60% of the company's revenue, could hold back MercadoLibre's near-term valuation. He believes that the company is in an ideal position to benefit over the long-term from attractive secular shifts in e-commerce and payments across Latin America and expects the stock to trade at the low end of its historical trading range until macro uncertainty subsides.
Remitly Global Inc – Earnings Date not released yet
Source: YCharts, Earnings Report, and I/O Fund
Global remittance provider Remitly’s Q3 revenue grew by 69%. It was the first earnings report since it became a public company in September 2021. The full lock-up expiry is expected next month. Active customers were up 51% and the average revenue per active customer was up 12% YoY to $47.34. Adjusted EBITDA came at $0.3 million compared to $0.6 million in the same period last year. The analysts expect revenue to grow 57% to $125.36 million in Q4. The management expects full-year revenue to grow about 74% YoY in the range of $445 million to $450 million.
JMP Securities analyst David Scharf has lowered the company’s price target to $40 from $52 and has kept the Outperform rating. The analyst remains positive on Remitly’s leadership position as a mobile-first, all-digital network serving a large and expanding total addressable market and believes that its secular tailwinds will continue. However, he cautions that the shares might be volatile in the near term due to the negative market sentiment.
DLocal Ltd – Tentative Earnings Date is February 28th
Source: YCharts, Earnings Report, and I/O Fund
The company’s revenue grew by 123% in Q3 and the analysts expect revenue to grow 115% to $74.52 million. The total payment value (TPV) increased by 217% in Q3 to $1.8 billion. The net revenue retention rate was 185%. The management expects NRR in the range of 150% to 160% in the medium term and to come down to about 120% to 130% in the long term.
Goldman Sachs analyst Tito Labarta has upgraded the company to Buy from Neutral and has a price target of $55. He believes that “The company should experience relatively minor impacts from higher interest rates considering that it has no debt on its balance sheet and does not focus on the pre-payment of receivables.”
The I/O Fund is a team of analysts who share their research publicly as they build a portfolio of 20 stocks. Our team has record results for a retail Fund and we also have four-digit gains on some of our free newsletter coverage. You can learn more about our premium service by clicking here or sign up for our free newsletter here.
Disclaimer: This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.
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