In this article, we discuss the 5 fintech stocks Redditors are buying. If you want to read our detailed analysis of these stocks, go directly to the 10 Fintech Stocks Redditors are Buying.
5. Paysafe Limited (NYSE: PSFE)
Number of Hedge Fund Holders: 50
Paysafe Limited (NYSE: PSFE) is ranked fifth on our list of 10 fintech stocks Redditors are buying. The company provides digital commerce solutions and operates from Bermuda.
On August 12, investment advisory Bank of America initiated coverage of Paysafe Limited (NYSE: PSFE) stock with a Buy rating and a price target of $15, noting that the firm was “uniquely positioned” to capitalize on the iGaming market.
At the end of the second quarter of 2021, 50 hedge funds in the database of Insider Monkey held stakes worth $1.1 billion in Paysafe Limited (NYSE: PSFE), up from 41 in the previous quarter worth $1.3 billion.
4. Fiserv, Inc. (NASDAQ: FISV)
Number of Hedge Fund Holders: 72
Fiserv, Inc. (NASDAQ: FISV) is a Wisconsin-based financial technology company. It is placed fourth on our list of 10 fintech stocks Redditors are buying.
On August 17, investment advisory JPMorgan maintained an Overweight rating on Fiserv, Inc. (NASDAQ: FISV) stock and raised the price target to $145 from $142, noting that modern players in the payments sector were outperforming.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Harris Associates is a leading shareholder in Fiserv, Inc. (NASDAQ: FISV) with 12 million shares worth more than $1.2 billion.
In its Q1 2021 investor letter, Madison Funds, an asset management firm, highlighted a few stocks and Fiserv, Inc. (NASDAQ: FISV) was one of them. Here is what the fund said:
“This quarter we researched several new stock ideas, but because of high prices, acted on only one. Thus, a new portfolio name is Fiserv, with corporate headquarters in Brookfield, WI, just down I-94 from us. Fiserv is a technology company serving financial institutions (“FIs”) and retail merchants. It has two main business lines. In the first, it’s a market leader in outsourced IT solutions for banks and credit unions, online and mobile banking technology, digital money movement solutions, and card issuing services. Fiserv’s second core business is merchant acquiring and processing, where it’s a leader in providing a variety of solutions to help all types of merchants accept digital payments. They entered this business through the acquisition of First Data in 2019.
Within the first business, Fiserv’s software is critical to the daily operations of FI clients. Their solutions not only provide the vital central processing systems, but also enable services such as electronic bill pay and digital money transfers at both large institutions and local banks and credit unions alike. As such, it is an incredibly sticky business that is resilient through economic cycles. On the merchant acquiring side of Fiserv, they process trillions of dollars annually for millions of merchant clients. Their solutions cater to all types of merchants and optimize for seamless acceptance and high authorization rates while also limiting fraud. Similar to the IT outsourcing business, Fiserv’s merchant solutions are critical to their customers’ daily operations. Furthermore, we are especially encouraged by their investments in new solutions, particularly Clover and Carat. Clover is a small and midsize business merchant acquiring platform and Carat is an e-commerce acquiring platform. Both these products hit the bullseye in terms of the way people are interacting with the retail industry, and both are growing at above market rates, which we believe will sustain into the future.
In addition to Fiserv’s favorable business characteristics and competitive positioning, the management team, led by CEO Frank Bisignano, has a track record of successfully investing for growth, improving profitability, and intelligently allocating excess capital. We believe these value-creating activities will continue going forward.
Financial institutions are increasingly making investments to digitize their customer facing products and digital payments are increasingly taking share from cash as a form of payment. As a result, demand for Fiserv’s solutions, should continue to grow nicely in the coming years. In our view, Fiserv offers a nice combination of above average growth, high profitability, business resiliency, and shareholder-friendly management. We do not believe these characteristics were fully reflected in Fiserv’s share price when we made our investment during the quarter at a discount to the market’s 2021 price-to-earnings (P/E) multiple, a valuation level well below Fiserv’s historical premium.
An offsetting trade was the sale of Cognizant Technology Solutions, which was sold around the time Fiserv was added to the portfolio. Cognizant had been held since 2018, and we had expected it to perform similarly to another portfolio holding in the same industry, Accenture. Alas, multiple years of below industry growth challenged the investment, and despite our belief that CEO Brian Humphries could materially improve operations, recent metrics regarding elevated employee turnover and still below-average revenue growth led us to conclude that there was more heavy lifting required at the company. We decided that our investors would be better served by being invested in Fiserv rather than Cognizant.”
3. Square, Inc. (NYSE: SQ)
Number of Hedge Fund Holders: 94
Square, Inc. (NYSE: SQ) is a California-based company that markets digital payments solutions. It is ranked third on our list of 10 fintech stocks Redditors are buying.
On August 17, investment advisory JPMorgan reiterated an Overweight rating on Square, Inc. (NYSE: SQ) stock and raised the price target to $320 from $300. Tien-tsin Huang, an analyst at the firm, issued the ratings update.
At the end of the second quarter of 2021, 94 hedge funds in the database of Insider Monkey held stakes worth $10.3 billion in Square, Inc. (NYSE: SQ), up from 92 the preceding quarter worth $9.2 billion.
2. Sea Limited (NYSE: SE)
Number of Hedge Fund Holders: 104
Sea Limited (NYSE: SE) is placed second on our list of 10 fintech stocks Redditors are buying. The company runs an online commerce platform but also has a large stake in the fintech business. It operates from Singapore.
On August 18, investment advisory Cowen maintained an Outperform rating on Sea Limited (NYSE: SE) stock and raised the price target to $355 from $345, noting that the topline growth of the firm was continuing.
At the end of the second quarter of 2021, 104 hedge funds in the database of Insider Monkey held stakes worth $12.2 billion in Sea Limited (NYSE: SE), up from 98 the preceding quarter worth $10.4 billion.
In its Q4 2020 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Sea Limited (NYSE: SE) was one of them. Here is what the fund said:
“Sea Ltd (SE): When I wrote our Q4 2019 letter about Shopee launching a Brazilian business, it seemed very few investors or competitors knew or cared.
A year ago, I wrote: “This is the first test for the ecommerce marketplace outside of its Southeast Asia home base. Will the platform’s fun and addicting features overcome a lack of local knowledge and presence? It’s hard to predict consumer behavior and how accepting users will be to a platform – especially one that’s a foreign culture and 10,000 miles away. The only way to know is to experiment and watch the results closely.
Empirically though, it seems that what consumers find entertaining in Asia, generally translates well to Brazil (and Shopee really is as much an entertainment platform, as an ecommerce one).
For example, just look at the top 10 free apps in Brazil. Two are utility messaging apps, so we’ll ignore those (WhatsApp and
Facebook Messenger). But among the remaining eight apps, they’re all entertainment based and overwhelmingly Asian. Four are from China (Kwai, TikTok, VStatus, TikTok Lite), two from Singapore (Free Fire and Shopee, both Sea Ltd apps), and one from the US (Instagram). The commonality is that all these apps are experts at creating addictive habits, as evidenced by their personalized recommendations, avg usage time, number of logins per day per user, etc.” (LINK)
I distinctly remember having conversations with several Brazilian hedge funds as recently as last summer who were investors in Sea Ltd. When the topic of Brazil came up, many of them didn’t even know Shopee was operating in their own backyard!
Part of this stems from the fact that Shopee tends to enter markets with a bottoms-up approach. Instead of going after urban, high disposable income users first (of which these hedge fund professionals were certainly part of), they tend to initially go after those with only a few hundred or thousand USD of annual disposable income. These users tend to reside outside of major cities, have fewer choices for recreational pastime (thus turning to gaming, short-form videos, or online shopping for entertainment), can’t afford “branded” items and thus are willing to take a chance on cheaper (but still good quality) un-branded goods, and are willing to wait several weeks for it to be shipped from Asian factories.
Anyone who has studied Pinduoduo (Nasdaq: PDD) in China, will recognize this strategy and just how large of a market these consumers can be. As Shopee gains popularity in a market, they will then start to slowly move “up-market”, and cater to more urban and higher-income consumers. They’ve already followed this exact strategy in Southeast Asia, and this is the point they’ve reached in Brazil over the past year.
Shopee made its first big social push last fall, hiring over a dozen influencers with 1M+ followers to promote Shopee’s Black Friday sale (LINK). In addition, they also released their first Brazilian TV commercial last year.
It seems these initiatives are working. Shopee now consistently ranks in Brazil’s top 5 apps (while sister app Free Fire, is also the #1 grossing app). In addition, Shopee also moved Pine Kyaw (LINK), one of their key lieutenants in Vietnam who successfully helped Shopee fight off competitors (Tiki, Lazada, Sendo), to Brazil last May.
For the past year, the company has insisted publicly that the Brazil initiative is still a “test” initiated by the cross-border team. While this may have been true at first, it’s clear this is no longer a “test”, but rather a strategic focus for Shopee and posed to be the next battleground. It’s likely the company has chosen to remain tight-lipped so as to not tip off competitors, while they quietly “position the troops” to prepare for a larger assault.
For example, Shopee is also starting to allow local sellers to join the platform and list their local inventory (LINK). By definition, this is no longer a cross-border initiative (i.e. allowing their Southeast Asian sellers to sell to Brazilian consumers, and then shipping the goods directly from Asia. This is the model Aliexpress follows.).
This is the start of a localized marketplace. And similar to their early days in Southeast Asia, the goal is to reach the “tipping point” at which the marketplace becomes self-sustainable (this concept is discussed in our Q1 2019 letter; LINK). The weapons of choice in reaching critical mass: social media influencers to drive rust & awareness, free shipping & discounts to acquire / convert these new customers, and gamification of shopping to drive continued engagement, habit building, and repeat purchases.
Given all of this, and the strong (but early) traction in the local Shopee Brazil marketplace, investors need to keep an eye on this development. It is the smallest GMV contribution among Shopee’s countries currently, but a large inherent call option in the valuation. Something that so far, seems greatly underappreciated. I suspect at some point in the near future, Shopee’s management team will disclose more on the initiative, and at which point investors will be surprised by how Shopee managed to quietly build one of the largest marketplaces in Brazil.”
1. PayPal Holdings, Inc. (NASDAQ: PYPL)
Number of Hedge Fund Holders: 143
PayPal Holdings, Inc. (NASDAQ: PYPL) is ranked first on our list of 10 fintech stocks Redditors are buying. The firm markets technology and payments solutions and is headquartered in California.
On September 8, investment advisory Citi maintained a Buy rating on PayPal Holdings, Inc. (NASDAQ: PYPL) stock with a price target of $350. Ashwin Shirvaikar, an analyst at the firm, issued the ratings update.
At the end of the second quarter of 2021, 143 hedge funds in the database of Insider Monkey held stakes worth $16.3 billion in PayPal Holdings, Inc. (NASDAQ: PYPL), the same as in the preceding quarter worth $14.7 billion.
In its Q4 2020 investor letter, Polen Capital Management, an asset management firm, highlighted a few stocks and PayPal Holdings, Inc. (NASDAQ: PYPL) was one of them. Here is what the fund said:
“For the full year 2020, one of the top performers was PayPal, which we purchased in 2019, the company continues to take market share in digital payments and has seen an acceleration in user adoption and engagement, especially within their “silver tech” or older user demographic. We expect many more years of ongoing double-digit growth from their various business segments and new initiatives.”
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