Inflationary pressures and rising interest rates have weighed heavily on the stock market in 2022. The period of cheap capital looks like it could be waning, and many high-growth stocks -- including fintechs -- have taken a hit.
Global X FinTech ETF, one of the largest fintech exchange-traded funds out there, is down 23% to start this year and down 32% over the last year. This sell-off has created buying opportunities for several solid fintech companies, including PayPal Holdings (PYPL 0.02%), Coinbase Global (COIN -2.37%), and Silvergate Capital (SI 4.88%).
1. PayPal
PayPal saw its business boom amid the pandemic. The digital-payments company benefited from the lockdowns and shifting consumer preferences that ushered in contactless payment options and an explosion of online shopping.
In 2021, PayPal saw its total payments volume (TPV) surpass $1 trillion for the first time ever, capping an incredible two-year run. Over that time, the digital-payments company increased its customer base by 122 million new accounts while revenue grew 43%. This impressive growth propelled its stock price higher, with the company trading for $300 at one point last year.
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PayPal is one of several growth stocks that have sold off in the last six months, with the stock selling at about $112 as of Tuesday's close. Investors have expressed concern, as PayPal executives were more cautious with its 2022 earnings guidance.
The company previously projected revenue growth of 18% in 2022 but lowered its forecast to 15% to 17% during its fourth-quarter earnings call. Executives also mentioned that the company would shift its focus from adding new customers to increasing its app usage.
Because PayPal makes money per transaction, it makes sense to focus on getting as many of its 426 million active accounts engaged on the platform. That's because one-third of its customers drive a vast majority of its volume.
The sell-off makes the stock a good value at a 32 price-to-earnings ratio (P/E) and a 26 forward P/E -- its cheapest valuation since spinning off from eBay in 2015. Though investors are cautious, the digital-payments company will still see solid growth this year and can be had for almost a third of its 2021 high.
2. Coinbase Global
Coinbase is the leading cryptocurrency exchange and provides infrastructure for building decentralized applications. The company continues to add new cryptocurrencies as well as products and services to its platform as cryptocurrency becomes mainstream and diverse in its offerings.
Last year it saw active cryptocurrency markets along with strong growth in decentralized finance (DeFi) products, non-fungible tokens (NFTs), and other decentralized products. This helped Coinbase post $7.8 billion in revenue, representing growth of 514% from the year before. It also had net income of $3.6 billion, up 10-fold in one year.
Coinbase is yet another stellar company caught up in the recent market volatility. Since going public in April 2021, the stock is down more than 50%. The stock tends to show a strong correlation to the price of Bitcoin, which is down about 25% since that same date.
While 2021 was an incredible year of growth, Coinbase executives were more uncertain with their 2022 forecast. Management expects potential headwinds like rising interest rates, inflation, and geopolitical instability to hurt the business.
However, some investors are optimistic about its long-term growth and role in the cryptoeconomy. Opportunities in DeFi and NFTs should propel the next leg of growth for a company already growing at an impressive rate.
3. Silvergate Capital
Silvergate Capital is one of the first banks to work with cryptocurrency customers, starting in 2013, helping them navigate an unknown regulatory environment -- giving it a first-mover advantage.
Its position in the cryptocurrency market makes the bank interesting. One of its first cryptocurrency products was its Silvergate Exchange Network (SEN). This network allows its exchange customers, like Coinbase and Gemini, to transfer U.S. dollars between exchanges. It helps these platforms facilitate trades and transfers efficiently and effectively.
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One aspect that I like about this is how much the bank's noninterest-bearing deposits have grown. Silvergate's total deposits have grown 705% to $14.3 billion in the past five years. Of these, 99.5% are noninterest-bearing deposits.
With inflation at 7.9%, as measured by the U.S. Consumer Price Index, the Federal Reserve has begun to combat rising prices by raising interest rates. In March, the Federal Reserve raised rates by 0.25%, its first rate increase since 2018. This could be an excellent thing for Silvergate amid the current environment.
Rising interest rates will benefit Silvergate because of the amount of its noninterest-bearing deposits. According to its recent regulatory filing, a 1% increase in interest rates would raise its net interest income by 60%. Silvergate is already a stellar investment for its role in the cryptoeconomy, but tailwinds from rising rates give investors another good reason to own the bank.
