Fintech Stocks to Watch as Interest Rates Decline
Fintech companies faced challenges in 2022 and 2023 due to inflation and rising interest rates, which led consumers to spend less and seek safer investments. However, a significant change came in September when the Federal Reserve cut its benchmark rates as inflation showed signs of easing.
The decline in interest rates may present a good opportunity to invest in certain fintech stocks that show resilience but are still trading lower than their previous highs. Here are three stocks to consider: Robinhood (NASDAQ: HOOD), Upstart (NASDAQ: UPST), and Affirm (NASDAQ: AFRM).
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1. Robinhood: A Recovery on the Horizon
Robinhood became popular for its commission-free trades and user-friendly mobile app, attracting many younger investors. However, after reaching a peak during the pandemic’s growth stock and crypto boom in 2020 and 2021, the company saw its revenue drop by 25% in 2022 due to rising interest rates hampering riskier investments.
In 2023, Robinhood bounced back, with revenue rising 37% to $1.87 billion, surpassing its pandemic peak. This growth resulted from an increase in both funded customers and assets under custody, reaching 23.4 million and $103 billion, respectively, by late 2023. By the end of Q3 2024, these figures grew to 24.3 million customers and $152.2 billion AUC, aided by an expansion of its subscription-based Gold plan to 2.2 million users. Analysts predict a 38% increase in revenue for 2024, likely leading to Robinhood’s first annual profit since 2020. With a valuation at 40 times forward earnings and 8 times next year’s sales, the stock appears poised for future growth as the market stabilizes.
Upstart utilizes an AI-driven platform to help banks, credit unions, and auto dealerships approve loans. Unlike traditional methods that focus on FICO scores and credit histories, Upstart considers factors such as education and prior employment to broaden loan accessibility for younger and less experienced borrowers.
After a remarkable 264% revenue increase in 2021, the company’s growth stalled due to rising interest rates affecting lending behaviors. Revenue fell 1% in 2022 and plummeted 39% in 2023, leading its adjusted EBITDA to turn negative. For 2024, analysts foresee an 11% revenue rise, but adjusted EBITDA is expected to remain in the red. Looking ahead to 2025, predictions indicate a 29% revenue increase if the company can recover as interest rates stabilize.
3. Affirm: Evolving in the Buy Now, Pay Later Space
As a prominent player in the buy now, pay later (BNPL) sector, Affirm allows consumers to split their purchases into manageable installments, making it an appealing alternative for those without credit card approval. Typically, it charges merchants lower fees compared to traditional card networks.
Affirm experienced significant revenue growth of 71% in fiscal 2021 and 55% in fiscal 2022, boosted by e-commerce trends during the pandemic. However, in fiscal 2023, revenue growth slowed to 18% as inflation and faltering sales from its key partner, Peloton, weighed on its performance. To counterbalance this, Affirm has expanded its partnerships, signing on major retailers like Amazon, Walmart, and Target. Revenue increased by 46% in fiscal 2024, and analysts predict a continued upward trajectory, with expectations of 30% growth in fiscal 2025 and 20% in fiscal 2026. Moreover, Affirm’s adjusted EBITDA is projected to become positive by fiscal 2026. Valued at about 5 times this year’s sales, Affirm seems well-equipped to rebound as consumer spending resumes.
Seize the Moment for Potential Investment Gains
Investors often feel they missed earlier opportunities to buy promising stocks. However, there are times when expert analysts identify companies ready to rise. If you think you’ve lost your chance, now could be the best moment to invest.
Examples of past successes include:
- Amazon: A $1,000 investment in 2010 would now be worth $23,657!*
- Apple: $1,000 invested in 2008 has grown to $43,034!*
- Netflix: A $1,000 investment made in 2004 has skyrocketed to $429,567!*
Presently, analysts are issuing alerts for three companies that may present lucrative opportunities moving forward.
See 3 “Double Down” stocks »
*Stock Advisor returns as of November 4, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun holds positions in Amazon. The Motley Fool has positions in and recommends Amazon, Peloton Interactive, Target, Upstart, and Walmart. The Motley Fool recommends Fair Isaac. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
