Fintech, or financial technology, is one of the most exciting and rapidly evolving industries in the world. However, while many fintech stocks still trade for sky-high valuations, some could still be bargains at their current levels. With that in mind, here's why three of our contributors think you should take a closer look at Green Dot (NYSE:GDOT), Square (NYSE:SQ), and MarketAxess Holdings (NASDAQ:MKTX).
Trust the process
Matt Frankel, CFP (Green Dot): Along with its first-quarter earnings release, Green Dot announced it would be aggressively ramping up its investing in marketing and technology, which would come at the cost of lowered earnings in the short term. As you might expect, lowered earning predictions and future uncertainty led to a massive sell-off in the stock's price. Through the end of July, Green Dot's stock has lost 36% of its value in 2019.
However, this could be a great opportunity for long-term investors who believe in Green Dot's vision to get in at a discount.
In fact, we recently got our first glimpse of why Green Dot is investing so heavily in its marketing efforts, as the company just announced its Unlimited Cash Back Account, which combines a high-yield savings account with a rewards-paying debit card. On the savings side, the FDIC-insured account pays an industry-leading 3% APY on deposits at a time when even the highest-paying online banks are paying 2.3%.
On the debit card side, the new account gives customers 3% cash back on all online and in-app purchases. This would be a strong rewards rate on a credit card -- with a debit card, it's unheard of.
Only time will tell if the new account will catch on, but this is certainly an industry-leading product that deserves lots of money spent on marketing it. This new product has the potential to be a home run, and I can't see what else Green Dot should do with its increased spending on innovation.
It's hip to be Square
Matthew Cochrane (Square): Square makes most of its money processing card and digital payments for small- and medium-sized businesses. In the company's 2019 first quarter, transaction-based revenue grew to $657 million, a 26% increase year over year, and good for 68.5% of the company's total revenue in the quarter. Nevertheless, if Square only offered payment processing services, it would be hard to recommend as an investment, and I certainly wouldn't reserve a spot for it in my personal portfolio. It's a fiercely competitive market for what has largely become a commoditized service.
Fortunately for investors, Square is now much, much more than a payment processing service, because it never stopped innovating since first introducing a way for mobile devices to accept payments a decade ago. For instance, Square recently rolled out a suite of new e-commerce tools merchants can use to sell their products and services online. Indeed, since the beginning of the year, Square has integrated third-party food delivery apps with its Square for Restaurants platform, announced a partnership with the Washington Nationals baseball team that allows fans to have food delivered to their seats, introduced a business debit card, and launched a software development kit (SDK) for developers to integrate Square's payment processing services with third-party apps.
These segments are accounted for in the company's subscription and services-based revenue category, which, excluding acquisitions, grew to $191 million in the company's first quarter, a 97% increase year over year. As long as Square continues to innovate at a rapid pace -- and right now there's no sign of it slowing down -- the company should continue to see outsized growth driving market-beating returns.
Getting Axess to bonds
Dan Caplinger (MarketAxess): Fintech has become a hot area in the investing world, and one of the best performers in the niche is MarketAxess Holdings. The company provides the largest electronic trading platform in the industry for institutional investors and dealers who want to trade in the fixed-income markets.
That might not seem like that revolutionary of a concept, especially given how many brokerage options there are in the stock arena. Yet for the bond market, which has long suffered from dramatically less transparency and price availability, the advent of a digital platform that can connect buyers and sellers seamlessly and visibly is a huge accomplishment. Moreover, because the bond market is much larger than the stock market when it comes to the volume of typical trading activity, MarketAxess is tapping into a potentially much more lucrative opportunity than a corresponding business that focused solely on the stock market.
MarketAxess' impressive growth has brought it to the top level of the financial industry, and the stock got a vote of confidence from S&P Dow Jones Indices earlier this month when it officially brought MarketAxess into the S&P 500 index. With bond trading remaining a key driver of the financial world, shareholders can expect MarketAxess to keep working to broaden its leadership position in fixed income and find new ways to revolutionize how bonds are traded.