The cryptocurrency market burned a lot of investors over the past year as rising interest rates drove investors away from riskier investments. Bitcoin (BTC -0.84%) has lost about 70% of its value since hitting its all-time high last November, and many of the smaller altcoins have collapsed.
The crypto meltdown might represent a buying opportunity for contrarian investors who can stomach the volatility, but most investors should probably avoid that sector and stick with better-diversified fintech plays. So today, I'll take a closer look at three promising fintech stocks -- Adyen (ADYE.Y 2.66%), MercadoLibre (MELI -0.81%), and Visa (V -0.03%) -- and explain why they could be better bets than most cryptocurrencies.
Adyen is a Dutch software company that provides an end-to-end platform for processing payments, data analytics, and financial management services. Its services can be integrated into existing online, mobile, and in-store payment systems with just a few lines of code.
Those flexible integrations enable merchants to accept over 250 payment methods, including credit cards, debit cards, mobile wallets, and other payment apps. Instead of providing dedicated consumer-facing apps like PayPal or Block's Cash App, Adyen's back-end software enables merchants to launch their own payment cards and mobile wallets. Adyen also doesn't dabble in any cryptocurrency trading services, stock trading tools, or physical debit cards.
Adyen quietly operates from behind the scenes, but it's growing like a weed. Its revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 46% and 57%, respectively, in 2021 as it lapped a rare slowdown during the pandemic in 2020.
Analysts expect its revenue and adjusted EBITDA to rise another 35% and 36%, respectively, this year. The stock isn't cheap at 50 times this year's adjusted EBITDA, but its robust growth and disruptive potential -- which pulled eBay away from PayPal in 2018 -- justify that premium valuation.
MercadoLibre is usually known as Latin America's e-commerce leader. However, the company's PayPal-like Mercado Pago payments platform -- which tethers merchants, shoppers, and off-site businesses to its ecosystem -- also makes it the region's top fintech company.
That ecosystem also includes its credit-based payment services (Mercado Crédito), online insurance policies, investment services, and cryptocurrency trading tools. It ended the first quarter of 2022 with 35.8 million unique active fintech users, representing 31% growth from a year earlier, and that ecosystem included 20.2 million mobile wallet users and nearly 23 million investment accounts.
Its total payment volume (TPV) soared 81% year over year on a constant currency basis to $25.3 billion during the quarter. The take rate for its entire fintech ecosystem rose from 3.19% to 3.84% between the first quarters of 2021 and 2022, which indicates that economies of scale are kicking in.
MercadoLibre still generates most of its revenue from its online marketplaces, but its entire business is still growing rapidly. Its revenue and adjusted EBITDA surged 35% and 31%, respectively, in 2021. This year, analysts expect both its revenue and adjusted EBITDA to increase about 47%.
MercadoLibre's stock looks reasonably valued at 35 times this year's adjusted EBITDA -- and it could still have plenty of room to run as income levels and e-commerce penetration rates climb across Latin America.
Visa is sometimes considered a "traditional" financial services company, but its massive payments network -- which is currently tethered to 3.6 billion cards and accepted at over 70 million merchant locations in over 200 countries -- actually makes it one of the largest fintech companies.
On its own, Visa doesn't issue any cards or take on any liabilities from consumers. Instead, it partners with banks -- which actually issue and financially support their own Visa-branded cards. Visa then generates most of its revenue by charging businesses "swipe fees" to access its network.
Most digital payment platforms, such as PayPal or Apple Pay, are still often tethered to an underlying credit card from Visa or its top rival, Mastercard. Many of Visa's partners have also added near-field communications (NFC) chips to their cards to enable tap-to-pay features and contactless payments.
Visa even started rolling out crypto-linked debit cards across several markets over the past year, as well as its own "buy now, pay later" BNPL network, called Visa Ready, to help banks counter BNPL challengers like Affirm, Block's Afterpay, and PayPal's Pay in 4.
Visa's revenue and adjusted earnings grew 10% and 17%, respectively, in 2021, as its total processed transactions rose 17%. Analysts expect its revenue and earnings to increase another 19% and 21%, respectively, this year -- even as inflationary headwinds rattle the economy. The stock is still reasonably valued at 24 times forward earnings, and it should remain a solid blue-chip alternative to the market's more speculative fintech plays.