Understanding the Market | How to Invest in the 2024 US Stock Financial Technology Payment Sector?

Dan Dolev, an analyst at Mizuho Securities USA, has identified Affirm Holdings (AFRM.US), Fidelity National Information Services (FIS.US), Robinhood (HOOD.US), and Square (SQ.US) as the top picks in the financial technology payment industry for 2024. At the same time, the analyst holds a more cautious stance towards Coinbase Global (COIN.US) and Toast (TOST.US).

The analyst highlights four major trends for 2024:

1. Payment network giants Visa and Mastercard have performed well in a challenging macroeconomic environment, but "potential competition from FedNow and other account-to-account payment schemes is emerging, which could erode their network revenue growth over time."

2. In the merchant acquiring space, vertical specialization has been the theme for 2021 and 2022, especially for Toast, which focuses on the restaurant industry. However, Dolev believes that distribution capabilities will be the key competitive advantage for long-term growth, with Clover, a subsidiary of Fiserv (FI.US), excelling in this aspect. Other players in the merchant acquiring business include Square, under Block, and Shift4 Payments (FOUR.US).

3. In the lending technology and consumer finance sector, default rates continue to rise, but Mizuho expects investors to start focusing on the low-interest rate environment in the second half of 2024. LendingClub (LC.US) indicates that discussions about credit challenges are shifting from "looking back" to "looking forward." Dolev sees this as a positive sign for stocks like Affirm Holdings and SoFi Technologies (SOFI.US).

4. Cryptocurrency: In the last quarter of 2023, the prices of Bitcoin and many Bitcoin-related stocks soared as people anticipated the approval of the first physically-backed Bitcoin exchange-traded fund by the U.S. Securities and Exchange Commission at that time. However, the analyst notes that the activity level is still far below the peak of the previous cycle. Dolev states, "We expect fundamentals (those related to Coinbase) to regain focus in '24, potentially lowering the barrier for pure crypto exchanges with high revenue like Coinbase, while Robinhood may benefit from strong execution and an improved trading environment."

Dolev provides the following comments on the top choices for 2024:

Affirm Holdings

Dolev believes that the Affirm card will change the game for credit card payments and is "very bullish on the opportunity to bring BNPL/hybrid debit card/credit card into physical stores through this card." He also sees potential in Affirm's transaction account. Fandetech Information Technology

After the spin-off of Worldpay, "it is expected that improving stability over time will become a key feature of the company's investment philosophy, and earnings per share in 2024 may be better than people's concerns."

Robinhood

With the improvement of market sentiment, stock and options trading will benefit, and retail stock trading is expected to increase. Dolev also mentioned new products and geographical expansion to the UK and Asia. He believes that over time, new products such as advanced trading, retirement accounts, and credit/debit cards can drive positive revisions in profit expectations.

Block

Dolev said, "Our bottom-up ecosystem model suggests that Block will easily achieve around 15% GP growth in 2024. In addition to the $2.4 billion EBITDA guidance, these valuations provide an attractive opportunity."