The fintech sector has mostly been struggling of late.
The boom in digital payments during the pandemic has faded, and new competition in the sector is also putting pressure on established incumbents. However, the fintech sector still seems to have a bright future in front of it, as there's little question that digital payments will continue to replace cash and that consumers want to use the most convenient forms of payment available, such as by using their phones instead of credit cards.
Considering the long-term growth in the space, there are a number of ways to capitalize on the growth opportunity in the fintech sector. Keep reading to see two stocks that will help you do just that.
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1. Remitly Global
Remitly Global (NASDAQ: RELY) may not be a household name among investors, but it is in the immigrant community. The company specializes in handling remittances for immigrants -- the money they send back home.
This market has been traditionally dominated by legacy operators like Western Union and Moneygram, but Remitly is rapidly picking up share with a digital-first approach to remittances, and the company just turned in a stellar earnings report.
In its second-quarter report, the company saw active customers grow 47% to 5 million, driving send volume 38% to $9.6 billion, while revenue growth jumped 49% to $234 million, beating estimates by a wide margin.
The company has also turned profitable in terms of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), with a profit of $20.4 million, compared to a loss of $5.3 million in the quarter a year ago.
Management raised its guidance for the year, calling for revenue growth of 40% to 42% to between $915 million and $925 million. Most fintech companies benefit from operating leverage, meaning that profit margins improve as revenue grows, and Remitly fits that model as well. In addition to the strong improvement in adjusted EBITDA, the company also cut its net loss in half according to generally accepted accounting principles (GAAP).
The company is competing in a total addressable market of remittances valued at $1.6 trillion and a serviceable addressable market of $589 billion based on remittance flows to low- and middle-income countries.
The company struggled out of the gate after its 2021 IPO but has quickly made up for that, and the stock has now doubled year to date. What's also impressive is that revenue growth has accelerated in recent quarters after hitting a trough in the third quarter of 2022. If it can maintain that strong growth rate, the stock could be a big winner.
2. MercadoLibre
MercadoLibre (NASDAQ: MELI) isn't exclusively a fintech stock. In fact, the company might be better known for its e-commerce business. MercadoLibre operates as a diversified e-commerce and digital payments company across Latin America, and its operations include logistics, credit, and asset management, but the real star is its fintech business, MercadoPago.
Total payment volume in its second quarter nearly doubled, rising 96.6% to $42.1 billion on a currency-neutral basis. Its strongest growth has come from MercadoLibre's e-commerce platform, as it's distributed its own point-of-sale (POS) machines to brick-and-mortar retailers across Latin America. Overall, the fintech segment grew revenue by 48% in the second quarter on a currency-neutral basis.
The company continues to expand its payments business, recently issuing MercadoPago credit cards in Brazil, and its credit underwriting standards are showing signs of improvement as well. Management is focused on building out MercadoLibre as a one-stop shop for financial services, including credit, insurance, and payments.
MercadoLibre enjoys strong brand recognition across Latin America, and it has bucked the decelerating trends in e-commerce and digital payments that have hampered many of its peers around the world, like Amazon and PayPal.
Its complementary network of businesses creates strong competitive advantages, and there's still enormous growth potential for digital payments in Latin America as the middle class expands and more transactions go digital.
The stock has been a big winner over its history, up 4,000% since its 2007 IPO, and with revenue growth continuing to impress and profit margins expanding, MercadoLibre looks like a good bet to continue to outperform.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Amazon.com, MercadoLibre, and PayPal. The Motley Fool has positions in and recommends Amazon.com, MercadoLibre, and PayPal. The Motley Fool recommends the following options: short September 2023 $67.50 puts on PayPal. The Motley Fool has a disclosure policy.
