The market has gotten off to a lackluster start in 2022. Investors are concerned about inflationary pressures, the looming arrival of rising interest rates, and now a major geopolitical conflict disrupting the economic recovery even as the primary headwinds of the pandemic begin to dissipate.
In a market that is, broadly speaking, in a correction, growth stocks as a group have been hit the hardest. Since the year began, the iShares S&P 500 Growth ETF has lost 18% compared to the S&P 500's 12% decline. However, many growth stock names in the fintech space have been selling off for even longer.
Three fintechs that have declined by 49% or more from their 52-week highs are Coinbase Global (COIN 3.01%), Upstart Holdings (UPST 2.58%), and Block (SQ 2.16%).
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1. Coinbase Global
Investors interested in the cryptocurrency space would find Coinbase Global a solid choice. It provides the infrastructure for people to trade cryptocurrencies and build decentralized applications. At the end of 2021, its platform had 89 million retail customers, 11,000 institutional customers, and 210,000 other users like developers and merchants. This broad customer base is just one reason why Coinbase has 11.5% of total cryptocurrency market capitalization in cash and crypto on its platform.
Last year was a stellar one for the crypto platform, as the company pulled in $7.8 billion in revenue -- up an eye-popping 514% compared to the year before. Its bottom-line growth was impressive, too, with net income coming in at $3.6 billion, up by more than 1,000%.
Coinbase is poised to grow as the crypto economy grows. That's because it continuously adds new crypto assets to its platform while introducing new products and services. Last year also saw strong growth in things like non-fungible tokens (NFTs), decentralized finance (DeFi), and decentralized applications. Coinbase made $500 million in subscription and services revenue via products in staking, earn, and custody.
The stock, though, was beaten down in part because of the uncertainties in Coinbase's forecast. In its Q4 shareholder letter, company management talked about "even more unknowns which make our businesses all the more difficult to forecast." This is due to the unpredictability of crypto asset prices and macroeconomic headwinds like rising interest rates, inflation, and geopolitical instability.
Despite those headwinds, Coinbase looks to be a stellar long-term investment. The company is a crucial player in the crypto space and continues building out its platform as the crypto economy evolves. And with $7.1 billion in cash and cash equivalents compared to long-term debt of $3.4 billion, the company has the flexibility to continue to invest in the business and position itself to remain a key player in the space for years to come.
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2. Upstart Holdings
Upstart Holdings leverages artificial intelligence (AI) to make lending decisions on personal loans to consumers. The company wants to make lending available to everyone -- particularly those who are miscategorized as less creditworthy by traditional credit scoring standards. Upstart connects borrowers from its website with its banking partners, taking referral fees and platform fees in return.
The fintech put up a stellar year in 2021, with transaction volume up 241% to $11.7 billion. And thanks to its AI lending platform, nearly 70% of these loan approvals were fully automated. This propelled strong growth on the top and bottom lines. Revenue growth was 264%, while net income went from $6 million to $135 million. Yet despite all that, Upstart's stock price is still down by 72% from its 52-week high.
Investors have reasons to be optimistic. Upstart has been profitable every quarter since going public in December 2020, and the company is expanding into the automotive lending space. The total addressable market in consumer loans is $96 billion, while the automotive lending market is more extensive, with a $727 billion addressable market. After tripling its dealership footprint last year, Upstart expects to see $1.5 billion in auto financing volume in 2022.
Upstart is a solid fintech to buy at today's prices. After trading at nearly 200 times forward earnings last year, it's down to 51 times forward earnings now. That valuation is still quite lofty, but given Upstart's growth prospects, it could well be justified.
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3. Block
Block -- which most people know better by its original name, Square -- offers payments services and an ecosystem for commerce that lets small companies run and grow their businesses. It now provides 30 products and services across its two segments: Square and Cash App.
Cash App initially was simply a tool that let people send and receive money. Since then, it has expanded to allow people to invest, manage, and spend it, too. Last year, Cash App processed $152.8 billion of gross payment volume (GPV) across 3 billion card payments from 526 million payment cards.
Block also delivered a stellar performance in 2021. Its revenue rose 86% to $17.6 billion. However, investors may hesitate to get too enthusiastic about that rise, because $5.4 billion of the $8.2 billion growth was from Bitcoin revenue -- and Block will have a tough time topping that in 2022. However, its other business showed solid growth during the year too. Transaction-based revenue was up by $1.5 billion, or 45%, while subscription-based revenue was up by $1.2 billion, a 76% increase.
Block also had a busy year on the acquisition front. Among its purchases was Afterpay. That deal, which closed on Jan. 31, gives it a foothold in the "buy now, pay later" (BNPL) niche. The company will integrate Afterpay into its Cash App and Square platforms. From there, its Square product will integrate Afterpay into its online or in-person checkout solutions. Then, customers will be able to manage their repayments using the Cash App.
Investors' concerns about Block's rising expenses partly explain why its stock is trading close to 60% below its 52-week high. The company expects expenses to increase by $180 million from the fourth quarter -- mostly due to the costs of integrating Afterpay. Not only that, but investors are concerned that Bitcoin-related revenue will slow down.
Despite these concerns, Block has stellar long-term growth prospects. The company continues to grow and expand its offerings for customers. While integrating these offerings will take some time, it remains an excellent stock to buy and hold for the long haul.
