Which Of These Two Top Fintech Stocks Is On The Top Of Your List Right Now?
Fintech stocks have undoubtedly seen a good year in 2020. And it appears this momentum could continue this year as the pandemic has accelerated the adoption of e-commerce over physical retail, and digital payments over cash purchases. As a result, many brick-and-mortar stores are turning to contactless payment to limit the spread of viruses. For this reason, top fintech stocks in the stock market today have been seeing spectacular growth in their services and transaction volumes.
This month, two of the biggest heavyweights in the fintech space are showcasing their performance. PayPal (NASDAQ: PYPL) reported stellar earnings on Wednesday while Square (NYSE: SQ) expects to report later this month. Both are doing quite well amid such an unprecedented time. Many analysts also believe these two fintech stocks are the ones that are worth buying and holding for the long term. While increasing the adoption of digital payments has benefited these two companies, the rise of bitcoin has provided another boost. After all, both companies have made some inroads into the cryptocurrency space.
Both companies dazzled investors with their robust revenue growth and expanding fintech ecosystems. The tailwinds from the rise of bitcoin and pandemic have sped up the adoption of digital payments. That said, adding either one of these companies to your portfolio is a great opportunity to gain fintech exposure, but which one is the better pick?
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PayPal Holdings Inc. (PYPL) Stock
For a long time, PayPal perhaps was better known as the way people transacted on eBay. As you may or may not know, the company used to be wholly owned by eBay before it was spun off in 2015. But that’s all history. Today, the company is better known for its Venmo app, which facilitates digital funds transfer. From its latest quarter, PayPal saw a 60% growth in total payment volume for its Venmo service. The company witnessed its strongest quarter in history, with its profit tripled in the latest quarter.
The company reported a net income of $1.57 billion, up from $507 million in the year-earlier period. Revenue came in at $6.12 billion for its December quarter compared with Wall Street’s estimates of $6.09 billion. This marked the first time the payment giant reported more than $6 billion in quarterly revenue. What’s more, the company added 16 million net new active accounts in the fourth quarter, bringing its total active accounts to 377 million. As a result, PYPL stocks got a boost in the after-hours trading. Certainly, these results topped off an already strong year.
“PayPal delivered record performance in 2020, as businesses of all sizes have digitized in the wake of the pandemic,” PayPal Chief Executive Dan Schulman said in a statement. “In this historic year, we released more products than ever before and have dramatically scaled our acceptance worldwide, giving our 377 million consumer and merchant accounts even more reasons to use our platform.”
A SuperApp In The Making
During CEO Dan Schulamn’s conference call with investors, he predicted that the company’s mobile platform would transform into a super app. This came after the company made significant progress in its two new products – the cryptocurrency tool and the “buy now and pay later” feature. If Schulman’s prediction is correct, it could signal that PayPal will come to resemble its Asian counterparts like WeChat, which bundles most of the services you need in an app.
The company also released new details about its cryptocurrency plans during its earnings day. This new initiative will allow users to fund their accounts with cryptocurrencies. If you believe that cryptocurrencies will play a bigger role in payments or as a store of value, then PayPal could be one of the best fintech stocks to buy right now.
“We anticipate the rollout of that capability to begin late this quarter, and we hope to launch our first international market in the next several months,” Schulman went on to explain. A Venmo integration with crypto is expected “in the coming months“.
Square Inc. (SQ) Stock
If you like the growth in PayPal, you might like Square better. That’s because the latter has consistently outperformed the former in the past year. Of course, we will have to wait until Square’s earnings later this month to find out if this is still the case this quarter.
The only reason some might prefer PayPal stock over Square stock is because of its valuation. After a monstrous run, there is no shortage of investors who think SQ stock is priced to perfection.
The Cash App saw meteoric growth last year, generating about $2.1 billion in the third quarter. Cash App revenue jumped 574% year over year in the quarter as more people turned to cashless payments during the coronavirus pandemic. The number of active users climbed 25% to 30 million. With over 30 million monthly active users, there remains plenty of room for Cash App to grow its user base.
Robinhood’s Loss is Square’s Gains
There’s no question the company’s Cash App is a money-making machine. Apart from the peer-to-peer money transfer service, the app allows users to invest in stocks and bitcoin as well. Mizuho analyst, Dan Dolev says a survey of Robinhood traders who abandoned the popular investing platform for another service showed 40% switched to Square’s Cash App.
Of course, Cash App wasn’t the only trading platform that saw a new influx of customers. But it was one of the favorites. Whether or not these users will stick with Cash App in the long remains to be seen. I’m not sure if this could really make a big impact in the long run. Nevertheless, one thing I’m pretty confident about is that Square would have the capabilities to continue disrupting financial services.
All in all, both companies are top fintech stocks to buy no matter how you look at them. If we review the performance of these two fintech giants over the past few years, you would say that Square has been a consistent outperformer. With PayPal’s profit tripling in the latest quarter, do you think that Square would be able to perform better than that? Your guess is as good as mine. In any case, the move towards digital payments is a force that appears almost unstoppable. Where would these two stocks be a decade from now? Only time will tell.