Technology stocks have been put through the wringer by the market as of late. Dread over future interest rate hikes and uncertainty about Russia and Ukraine have spurred investors to exit positions in growth stocks and resort to safer assets. Consequently, several companies have seen their market values destroyed in the past six months. For many, all gains made during the pandemic have been wiped away.
The financial technology (fintech) industry, which refers to the blend of technology and finance, has been particularly hard hit recently. Prudent investors should interpret the negative sentiment as a buying opportunity given that the market is expanding at a red-hot pace. The global fintech industry is set to grow at a compound annual growth rate (CAGR) of 20% through 2030, up to $700 billion. With that in mind, let's examine three fintech stocks that investors should consider adding to their long-term portfolios today.
PayPal (PYPL 2.22%) is the conservative investment of the bunch. Shares of the fintech juggernaut are down about 60% in the past year, with no signs of a recovery anytime soon. PayPal's total payment volume (TPV) surpassed $1 trillion for the first time ever in 2021, making it the most accepted digital wallet across North America and Europe. The company, with 426 million active accounts, has more than 50% of the global payment processing software industry, with Stripe as a distant runner-up at just 15%. In an industry becoming increasingly crowded, PayPal has been able to establish a robust economic moat.
The company's financial statements are solid, too. In 2021, PayPal's revenue grew 18% year over year and its earnings rose 19%, up to $25.4 billion and $4.60 a share, respectively. Boasting $16.3 billion in cash and investments and a debt position of only $9.8 billion, the company's balance sheet is secure, irrespective of any economic circumstance. And cash continues to pour in -- PayPal's free cash flow expanded 38% this year and its cash from operations 31%, climbing to $1.6 billion and $1.8 billion, respectively. PayPal's elite market positioning and noteworthy track record make the company a top dog in the fintech arena today.
The next company on my radar is Block (SQ), formerly Square, which is down 51% in the past year. The company's growth story up to this point has been remarkable. In 2021, Block's top line grew by a whopping 86% year over year, equal to $17.7 billion. Because Block's sales are greatly affected by fluctuations in the price of Bitcoin, management encourages investors to focus more on gross profit.
Even so, gross profit ended the year at $4.4 billion, representing a 62% increase from 2020. Block's Cash App ecosystem continues to be the catalyst that drives growth. Originally created to simplify peer-to-peer payments, Cash App has evolved into a full-service financial platform. Increasing gross profit by 69% this past year, Cash App now competes with companies in debit and prepaid cards, stock trading, tax filings, digital wallets, and Bitcoin exchange spaces, among other areas. It's abundantly clear that Block plans to disrupt the financial services industry -- it'll be interesting to see if the company is able to manifest its ambitious goals over the long run.
The final company on my short list -- and perhaps the riskiest play -- is SoFi Technologies (SOFI 2.61%), which has fallen 58% over the last year. SoFi provides an array of financial products including student and auto loan refinancing, mortgages, personal loans, credit cards, investing, and banking via mobile and desktop. The company is growing rapidly -- adjusted sales grew 63% in 2021, up to $1.01 billion. With 3.5 million members to cap off the year, translating to 87% growth from 2020, SoFi has made great strides in developing its business and making its brand known.
SoFi is certainly a more speculative investment than the others on my list given that the company is likely years away from achieving profitability. It had a loss of $1.00 per share in 2021 and expects to report a negative bottom line again in 2022, so investors will have to remain patient with this company. In fact, analysts aren't modeling a positive net income until 2025. This is a long way off, and it's certainly possible that increased competition could hinder SoFi's margins and prevent the company from reporting positive earnings down the road. I don't think investors should worry, though. SoFi participates in a massive secular growth market and has made notable progress year after year.
If you want to buy, buy now
These three fintech companies -- all in different phases of growth -- could generate massive gains for investors over the long run. It's not always easy to buy stocks when they're falling rapidly; however, these are usually optimal moments to pull the trigger. The market has been acting illogical lately, and shrewd investors can take advantage of the situation. The fintech industry is here to stay, and as digital payments gain more traction, these three companies are poised for a successful run in the years ahead.