During the COVID-19 pandemic, everyone had to purchase goods and services digitally without contact for a year and a half, resulting in greater adoption of new digital fintech solutions.
Now that economies are reopening and US economic growth looks strong, look for accelerated spending activity to boost fintechs Marqueta (NASDAQ: MQ) and PagSeguro (NYSE: PAGS). Both companies are strong innovators with enormous growth opportunities. With market caps of $ 14 billion and $ 12 billion, respectively, each has huge potential that legacy financial giants couldn’t.
Marqeta makes credit card issuance more modern and flexible
Marqeta went public this summer and has been incredibly volatile stock. After falling 23.8% in September, the stock rebounded 38% in October, but the stock sold again recently following a single downgrade by an analyst.
Marqeta is a new fintech on the card issuing side of transactions. While many innovations are occurring on the merchant processing side of the equation, Marqeta has spent years developing an API platform that allows card issuers to flexibly change the characteristics of an issued card. This goes for both physical cards and virtual cards.
Yes, Marqeta looks a bit pricey, at around 40 times the sales, which may have prompted the analyst to downgrade. Besides, Square (NYSE: SQ), which uses Marqeta for its payment app and merchant cards, accounts for a disproportionate share of Marqeta’s revenue.
However, Marqeta’s ability to win over the best customers shows that its APIs have a competitive edge. Marqeta has landed AlphabetGoogle Pay as a customer in July. In October, Marqeta was very busy. The company announced an agreement with Uber to provide faster payments to carriers on its Uber Freight platform. October also saw a partnership with Bill.com develop a new business card for small and medium-sized businesses. Marqeta has also jumped on the cryptocurrency wave with new partnerships with Coinbase (NASDAQ: COIN) for a new encrypted debit card, as well as products from other crypto players Fold, Shakepay and Bakkt.
The fact that Marqeta attracts clients from across the spectrum, from big banks like Goldman Sachs Tech giants like Alphabet, rising fintech stars like Square, and major crypto players like Coinbase means that Marqeta’s platform has a lot to offer. A market cap of $ 14 billion seems too small for a company like this.
PagSeguro could become an emerging market giant
Meanwhile, Brazilian fintech PagSeguro has had a few tough months, but its discounted stock – down nearly 50% from its highs – could be an opportunity.
You can think of PagSeguro a bit like the place of Brazil: it started in the processing of payments for small and micro merchants and, since 2019, has been developing the digital PagBank for its merchants and consumers. Brazil’s banking system is highly concentrated among traditional banks, so the opportunity for disruption is great.
In September, the Brazilian government introduced a cap on prepaid card interchange fees, and PagSeguro sold the news. However, the interchange fee cap is not expected to affect PagSeguro’s income or profits at all, since PagSeguro’s core business is merchant acquisition fees and working capital loans. Management even said the cap could be a benefit to margins as it pays an interchange fee on the acquiring side of the company’s merchant.
This bit of negativity was followed by macroeconomic concerns in Brazil, which struggles with both high unemployment and high inflation. The government recently unveiled an increased social spending plan in October, which threatened to exceed the country’s constitutional spending cap.
Finally, a short seller recently released a report against PagSeguro and its rival StoneCo (NASDAQ: STNE). The report alleges that PAX Technologies, a Chinese company that manufactures point-of-sale devices for both companies, was recently raided by the FBI. However, the report does not offer a price target or how it may affect operations.
While this is not something to ignore, in my experience short reports often make mountains of molehills in an attempt to harm a stock. I think an issue with a vendor is probably temporary and / or not a life threatening threat. Additionally, the Brazilian economy will experience ups and downs over time.
Investors can be happy that most of the aforementioned issues are company specific, even though PagSeguro’s shares have been cut almost in half. Still, the business seems to be doing well. Management has already reported strong third-quarter numbers in advance, with total payments volume up 85% and active PagBank users up one million in the third quarter alone, representing quarterly growth. by 8.9%, or around 40% on an annualized basis.
Buying high quality stock when it’s going down is usually a good bet in the long run, and I like this emerging market fintech at this discounted price.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.