What happened
The stock market was having a strong day on Wednesday, with all three major market averages in positive territory by 0.6% or less at 12:30 p.m. ET. However, the financial technology, or fintech, industry was a major laggard.
Just to name some of the biggest losers, buy now, pay later leader Affirm Holdings (AFRM 0.68%) had declined by 11%, lending technology platform Upstart Holdings (UPST 2.05%) was down by nearly 10%, and so was Brazil-based payment technology company StoneCo (STNE 2.25%).
Image source: Getty Images.
So what
There are few company-specific catalysts at play here. Affirm was the victim of analyst action -- a Bank of America analyst cut its price target on the stock from $191 to $125. StoneCo received an underperform rating and $10 price target from Autonomous Research. But other than that, the news feeds for these three companies are clear.
Instead, the real reason for all of the downward momentum is PayPal Holdings' (PYPL 0.06%) fourth-quarter earnings report, which was released after the closing bell on Tuesday.
PayPal's stock is down by more than 26% Wednesday, and to put it in simple terms, its earnings report was a disaster.
Not only did the company miss earnings expectations, but it gave a 2022 earnings and growth forecast that was significantly lower than analysts had been looking for. User growth missed expectations, and PayPal reported the discovery of 4.5 million "illegitimate" accounts. The company cited inflation, lower consumer confidence, and supply chain issues as the reasons for the disappointing guidance. And the company is making significant adjustments to its customer acquisition and engagement strategy, essentially conceding that meeting previously stated user growth targets isn't likely to happen.
Now what
To be fair, there are some problems that are unique to PayPal's business. For example, by the nature of Upstart and Affirm's businesses, it doesn't likely have an "illegitimate account" problem.
However, the issues that caused PayPal to give investors weak forward guidance could certainly have implications for the three fintechs mentioned here as well. Slowdowns in consumer spending could affect payment or loan volume for all three, as could supply chain issues. For example, if products aren't available to sell, consumers won't need to use Affirm to spread payments out, won't need to borrow money through Affirm's banking partners, and won't shop as much at StoneCo merchants.
It's worth pointing out that it's still early in earnings season, and we don't know the fourth-quarter results or forward guidance from these companies yet. Affirm is set to report earnings on Feb. 10, Upstart is scheduled for Feb. 15, and we don't even have an earnings date for StoneCo yet. So, while PayPal's report certainly paints a dismal picture, it's important to take it with a big grain of salt until we hear how these businesses are really doing.
