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Market Summary:
The major indices are all trading modestly higher at midday following a choppy and mixed morning session on Wall Street. Pfizer (PFE) reported bullish earnings before the opening bell, but the firm’s COVID vaccine projection was slightly disappointing and the stock turned sharply lower in early trading, dragging other vaccine manufacturers like Moderna (MRNA) and BioNTech (BNTX) lower as well. On a positive note, a successful round of negotiations concerning the Russia-Ukraine standoff between French President Macron and Russian leader Putin has been helping investor sentiment this morning, despite the persistent rate-related fears that continue to weigh on growth stocks.
Stock Pick Summary:
With our last 2 picks exploding, we continue our accumulation strategy and diversify today in another exciting business that looks over sold now
The integrated fintech company consists of Square, Cash App, Spiral, and Tidal. It provides a slew of business solutions, software, banking services, peer-to-peer payment systems, Bitcoin tools, and has access to the music market through Tidal.
The Cash App ecosystem is poised to drive revenue and profit growth over next 2-3 years. The development of the Cash App, a mobile payments service that allows users to transfer money to other users has driven it to the top of the Fintech food chain. Besides Cash App, it offers payments services for merchants like payment processing and point-of-sale products. It also offers saving and loan products to small companies. In the third-quarter, the Fintech generated 27% year over year revenue growth from all products in its ecosystem. Total revenues were $3.83 billion in the third-quarter of 2021, $1.30B of which came from transaction-based revenues. Subscription and services-based revenues were $694.8M, showing 55% growth year over year. Fintechs play an important role in the cash-free economy. They process payments, much faster than regular banks, create easy-to-use apps for transactions and make online purchases more convenient than ever before.
Cash App revenues are driven primarily from Bitcoin revenue and Subscription and services-based revenue, while the Seller ecosystem takes in revenue through transactions. Although the company grew a healthy 20%, profitability took a hit, causing the stock price to tank. However, intrinsically, both Cash App and Seller have good growth prospects.
The untapped crypto potential could add another source of revenue for it. Cash App already brings in significant revenue through Bitcoin, but now the company has shown further commitment to solidifying its position in the crypto space. The company has taken many steps in recent months to increase its exposure to crypto. It is looking to build a next-generation mining microchip which is part of the company's larger plans to build a Bitcoin mining system.
Slowing revenue and gross profit growth is a key risk to watch out for as more Fintechs bring new financial products to consumers and move in the small business segment of the digital payments market. That said, we believe it is still a compelling business, and with the recent cut in valuation, it could be an attractive investment for patient investors.
Risk Meter:
Allocation Guidelines:
We don't recommend over investing in any stock. Consider starting with a small amount, say 2-3% of your portfolio's overall value, and add a little at a time.
You could invest as low as $200-$500 on a pick, and even buy just 1 or 2 shares, if you are new to investing, low on cash or just prefer going slow.
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