On Sept. 28, financial technology (fintech) company Shift4 Payments (FOUR 0.22%) partnered with e-commerce giant Amazon (NASDAQ: AMZN) to provide checkout-free shopping at stadiums. The technology has already been deployed at United Center, home of the Chicago Bulls.
The Shift4 news caught my eye because I believe it's a stock-picker's market for fintech companies. Here's why: The entire fintech sector is down right now. And when an entire sector of the stock market sells off, good companies often get thrown out with the bathwater.
For evidence of the general decline in fintech stocks, consider the exchange-traded fund (ETF) Global X FinTech ETF (NASDAQ: FINX). This ETF specializes in fintech stocks. Over the last three years, it's down nearly 50%, whereas the S&P 500 is up around 27% over this same time.
Therefore, there are bound to be good deals for long-term investors in the fintech sector. And it's worth exploring whether Shift4 stock is one of them, especially considering shares are down about 50% from their highs.
What is Shift4 Payments?
Payment volume (the dollar amount of processed transactions) for Shift4 is absolutely skyrocketing. In the second quarter of 2023, the company had end-to-end payment volume of $26.8 billion, up 59% year over year and up 487% from the same quarter of 2019.
Shift4's payment volume is skyrocketing thanks to a shift in its business. Its technology used to be used primarily for restaurants, and this is still a big part of its customer base. However, in recent years, the company has won the business of large venues, including resorts, casinos, and professional sports stadiums.
Shift4 CEO Jared Isaacman says it's winning these large-venue customers because it's delivering a "better commerce experience." And I believe that's where the news with Amazon fits into the bigger picture. This partnership won't necessarily cause revenue to skyrocket. Rather, it's about providing its customers with more options, and I believe that's how investors should think about it.
Amazon has experimented with checkout-free shopping for years. Now, it's offering its Just Walk Out technology to businesses. Think of it not as a physical device but rather as a virtual point-of-sales device. For its part, Shift4 is still offering the software that integrates these transactions with the rest of the business within the venue location.
In theory, this partnership can speed up commerce at large venues. And perhaps this is the kind of better commerce experience Isaacman was talking about.
Is Shift4 stock a good investment?
Shift4 is a profitable company with $142 million in trailing-12-month net income -- that's not bad considering its market capitalization is only $4.4 billion.
Also encouraging is that Shift4's profitability is growing faster than revenue right now, as the chart below shows.
FOUR Revenue (TTM) data by YCharts.
Moreover, Shift4 has growth opportunities. Payment volume is expected to continue to climb fast as it starts doing more ticketing for its large-venue partners. Additionally, Isaacman says that demand for its restaurant solutions is soaring, thanks to recent missteps by its competitors, including Toast. And finally, Shift4 is spreading its wings with international expansion as a result of its recent acquisition of cross-border payments company Finaro.
In short, there's plenty of revenue upside ahead for Shift4.
That said, the fintech space is notoriously competitive. And competitive spaces can trend toward lower profit margins over the long term. Many of Shift4's larger competitors struggle with profits as volume grows.
There are risks with Shift4 stock for sure -- that's true of all stocks. But there are still low-hanging opportunities for the business to grow. Therefore, for shareholders discouraged about its underperformance over the last three years, I believe there's good reason to at least keep holding your shares. And for investors looking for a stock to buy, Shift4 at least deserves a spot on your watch list.
