What Is the Best Fintech Stock to Buy Now? Our 7 Top Picks.
If you’re looking for the best fintech stock to buy, the world’s largest fintech exchange-traded fund (ETF) is an excellent place to start.
That distinction is held by Cathie Wood’s ARK Fintech Innovation ETF (NYSEARCA:ARKF), with total net assets of $860.4 million. Wood’s fintech fund is actively managed, so all 28 holdings have been hand-selected by the star manager and her analyst colleagues.
This is not my first rodeo when recommending fintech stocks, so several of the names selected from ARKF holdings are ones I’ve suggested in past articles.
ARKF has had an excellent start to the year. Through the first two months of 2023, it’s up nearly 28%, more than 6-times the S&P 500. It’s also up more than double on the Invesco NASDAQ 100 (NASDAQ:QQQM), which tracks the performance of the NASDAQ-100 Index, the 100 largest non-financial companies listed on the Nasdaq.
It’s never a good idea to write off active managers, because they can always go on a winning streak. Wood is no exception.
Of her top 10, there are five names I like. To round out the seven best fintech stocks. I want two more just outside the top 10.
| SQ | Block | $76.63 |
| TWLO | Twilio | $65.74 |
| DKNG | DraftKings | $18.32 |
| MELI | MercadoLibre | $1,208.72 |
| PATH | UiPath | $14.58 |
| TOST | Toast | $18.41 |
| ROKU | Roku | $63.64 |
Block (SQ)
Block (NYSE:SQ) is Wood’s second-largest holding, weighing 10.39%.
If I were managing the fund, I would make Block the top holding, not Coinbase Global (NASDAQ:COIN). Indeed, I’m suspicious of anything so heavily invested in the success of cryptocurrencies. That said, I guess that’s why she gets paid the big bucks.
Block reported Q4 2022 earnings on Feb. 23. On the top line, It reported revenue of $4.65 billion, $40 million ahead of analyst expectations. In terms of profitability, its gross profit was 40% higher than a year ago, at $1.66 billion, $130 million ahead of the consensus estimate. However, it did lose $114 million in the quarter.
I like the company’s one-two punch with Cash App and Square. Cash App’s gross profit in the quarter was $848 million, 64% higher than Q4 2021 and 10% higher than the previous quarter. Meanwhile, Square’s gross profit was $801 million, 22% higher than a year ago and sequentially higher.
I continue to see massive opportunities outside the U.S. In the fourth quarter, its gross profit outside the U.S. accounted for 17% of the total, up from 9% a year ago.
With nearly $7 billion in cash and short-term investments, Block is a fintech stock you want to own for the long haul.
Twilio (TWLO)
Twilio (NYSE:TWLO) is ARKF’S fourth-largest holding with a weighting of 6.25%.
The cloud communications company continues to trim the fat on its pathway to profitability. On Feb. 13, it announced that it was cutting 17% of its workforce. Last September, it reduced its headcount by 11%, bringing its total job cuts over the past six months to 1,900.
Job cuts are a fact of life in the tech industry. When investor money is sloshing around and times are good, it’s easy to get carried away with hiring. It remains to be seen how it performs with a smaller headcount, but clearly, Wood feels the firm is heading in the right direction.
Of the 36 analysts that cover Twilio, 2o either rate it outperform or an outright buy, with an average target price of $82.46, 22% higher than its current share price.
When Twilio announced its Q4 2022 results in mid-February, it also said that it was separating its business into two units: Twilio Communications and Twilio Data & Applications.
“This week, we announced meaningful changes to Twilio’s leadership group, organizational structure, team size, and capital allocation strategy that will accelerate our path to profitability and, most importantly, improve our execution in delivering our Engagement Platform strategy for our customers,” said CEO Jeff Lawson.
On a non-GAAP basis, Twilio lost $26.8 million in 2022. However, the company’s estimate for 2023 is an operating profit of $300 million at the midpoint of its guidance.
Down 62% over the past year, its $1 billion share repurchase plan it just initiated makes total sense. It’s cheap, but for how long?
DraftKings (DKNG)
DraftKings (NASDAQ:DKNG) is the ETF’s fifth-largest holding, weighing 5.85%.
I think it’s safe to say that the sports betting company’s stock has finally started to recover here in 2023 from a slide that didn’t seem like it would ever end. As recently as May 2022, it traded as low as $9.77. It’s almost doubled in the nine months since.
According to GeoComply, there were approximately 100 million sports-betting transactions over this year’s Super Bowl weekend, 25% more than in Super Bowl 56. If that doesn’t tell you the thirst for sports betting in this country, I don’t know what will.
DraftKings reported its Q4 2023 results four days after Super Bowl 57. Its stock gained more than 15% on the news. The company delivered record quarterly revenue of $855 million, 81% higher than Q4 2022.
Although impressive, analysts were more excited about its focus on future profits.
“While the top-line upside is impressive in the current environment, we believe the profitability dynamics are more impressive,” MarketWatch reported Piper Sandler analyst Matt Farrell’s comments about the quarter. “It is obvious that the company is laser-focused on reaching (and potentially exceeding) its profitability targets.”
Assuming it continues to grow revenues at a tremendous pace, there is no reason why it can’t be profitable from a non-GAAP standpoint by 2024.
Under $20, it’s an excellent long-term buy for aggressive investors.
MercadoLibre (MELI)
MercadoLibre (NASDAQ:MELI) is Wood’s six-largest holding weighing 5.84%.
The phrase, “You have to be good to be lucky,” applies to South American e-commerce and fintech companies. The business was doing just fine, and then Americanas SA, one of its main e-commerce competitors, filed for bankruptcy protection. The company’s new CEO quit in January after finding nearly $4 billion in accounting inconsistencies.
Since then, MELI stock has increased 33% since Americanas’ CEO quit. That’s great news if you’re a long-time shareholder, but you’re probably not surprised. MercadoLibre has been a Latin American success story for years now.
After releasing its Q4 2022 results on 23 February, I don’t think there’s any doubt that MELI will revisit $2,000, where it traded in 2021. The company’s revenue was $3.0 billion in the fourth quarter, $40 million higher than the consensus estimate. In addition, its $3.25 share profit beat the analyst’s estimate by 83 cents or 34%. That’s no small beat.
As this article relates to fintech stocks, the company’s Q4 2022 shareholder letter stated that it had grown its fintech revenues five-fold over the past three years, turning it into a significant revenue and profit contributor.
In addition to its payment platform, it now offers credit cards, credit, insurance, savings, and investments, turning Mercado Pago into an integral part of its customers’ lives. Moreover, it drives the entire MercadoLibre ecosystem. It is the Block of South America.
UiPath (PATH)
UiPath (NYSE:PATH) is the seventh-largest holding with a weighting of 5.40%.
When I think of fintech stocks, a company specializing in robotic process automation (RPA) software doesn’t come to mind. However, the company’s software enables companies to easily automate front- and back-office tasks, saving them time and money, making it a relevant fintech and a big reason Wood has it in her top 10.
Forrester Research recently published its Q1 2023 Wave Report evaluating RPA providers. It had good things to say about UiPath. Specifically, Forrester believes that the capabilities it’s added in recent years, such as process mining, intelligent document processing, and API integration, have turned it into an automation platform that’s useful across an enterprise’s entire task list.
UiPath reports its Q4 2023 results on 15 March. It’s expecting revenue of $278 million at the midpoint of its guidance, 26% higher than a year ago, with an annualized renewal run-rate of $1.175 billion, $65 million higher than Q3 2023. Equally important, it expects a non-GAAP operating profit of $35 million in the quarter, ensuring it’s profitable in fiscal 2023.
The 22 analysts that cover its stock have an average target price of $17.47, 18% higher than its current share price.
Toast (TOST)
Toast (NYSE:TOST) is the fund’s 12th-largest holding with a weighting of 3.48%.
Of all the stocks mentioned in this article, Toast is the one that I’m most excited about. The work it’s doing to help restaurants of all sizes automate many of the processes that go into operating a successful restaurant makes it the fintech company to watch out for in the years ahead.
It might not be the biggest, with a market cap of $9.9 billion, but if it can harness its revenue growth and become a profitable business, the sky’s the limit. Toast’s all-in-one software platform currently powers more than 74,000 restaurants nationwide.
That might seem like a lot, but estimates put the total number of U.S. restaurant locations at more than one million. Toast has barely scratched the surface. As it continues to add to its offerings (order with Google integration, drive-thru technology, etc.) its annual recurring revenue (ARR) will continue to grow.
In 2020, its ARR was $326 million. By 2022, that had nearly tripled to $901 million. In addition, its net retention rate, which measures how much annual revenue it’s generating from customers who’ve been around for the past 12 months, has grown from 121% in 2020 to 128% at the end of this past year.
So, not only is it growing revenues, but for each customer it retains, it’s generating more revenue than the year before. That’s a good problem to have.
In 2022, its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was -$115 million, higher than the -$42 million seen the year before.
With some luck, 2023 could be the year that Toast’s adjusted EBITDA turns positive. If that happens, TOST stock will be flirting with $30.
Roku (ROKU)
Roku (NASDAQ:ROKU) is Wood’s 13th-largest holding, weighing 3.42%.
How you view the streaming platform’s stock depends on whether you’re a glass-half-full or half-empty person. ROKU stock is up nearly 60% year-to-date but down 53% over the past year.
Needham analyst Laura Martin likes what she sees from the company. She’s got a Buy rating on its stock with an $80 target price. Positives include a significant customer base of 70 million active accounts and a push into other innovative home products, such as video doorbells.
As streaming grows, the analyst believes Roku is ideally positioned to benefit.
“Roku is a key beneficiary of streaming growth, regardless of which streaming service wins – it is an arms dealer,” Yahoo Finance reported Martin’s comments.
The big negative with Roku, like a lot of fintechs, is that it loses money. In Q4 2022, it had an operating loss of nearly $250 million, compared to an operating profit of $21 million a year earlier.
There is no question that when you look at its Q4 2022 results, and you see that its operating expenses grew by 22% over the previous quarter, while its gross profit declined relative to Q3 2022, it does make you pause.
If you’re an aggressive investor, the things it’s doing with the Roku Channel to grow advertising revenues and the Roku Smart TV should be enough to get you to lay down a bet.
After all, it once traded for $450.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
