The once red-hot fintech space was one of the biggest victims of the implosion in high-growth stocks this year, but a jump in payments giant PayPal Inc. on Wednesday raised hopes that perhaps the group may have hit a bottom.
GFOF invests in companies representing three sectors Grayscale considers to be the future of finance: digital asset infrastructure, technology solutions and financial foundations.
While FINX invests broadly in emerging financial tech companies that are disrupting established finance-related industries like insurance, investing, fundraising and third-party lending.
Fintech Giants Reports
This week, PayPal reported that its second-quarter revenues increased by 9% year over year to $6.8 billion, slightly ahead of the consensus Bloomberg analysts’ estimate. Still, the company projected $27.85 billion in revenues for 2022 as a whole, which would come in below what analysts’ expectations prior to the report.
Nevertheless, shares of the company surged 10% as investors cheered the fact that the results weren’t even worse. At its lowest point in July, PayPal was down more than 77% from its highs of 2021, so clearly, the stock had priced in a lot of bad news.
In addition to providing guidance on its business, PayPal confirmed that activist investor Elliott Management had taken a $2 billion stake in the company.
Jesse Cohn, a managing partner at Elliott, mentioned a “a number of steps that have been underway and are being initiated to help realize the significant value opportunity.”
Indeed, PayPal forecast that cost cuts would save it $900 million in 2022 and $1.3 billion in 2023. It also forecast it would repurchase $4 billion of stock this year.
All those measures together might help the company make a bit more money than it previously thought. PayPal raised its earnings-per-share guidance for 2022 to $3.92 which is an increase from the company’s previous 2022 guidance of $3.87, but still below $4.60 in 2021.
Fintech ETFs Jump
As one of the world’s largest fintech companies, PayPal naturally has a big weighting in ETFs that target the theme. GFOF, FINX, the Direxion Daily FinTech Bull 2X Shares (FNTC) and the ETFMG Prime Mobile Payments ETF (IPAY) each allocates more than 6% of their portfolios to the stock, according to the ETF.com stock finder tool.
These funds advanced from 3.5% to 6.5% on Wednesday as they benefited from the gains in one of their largest holdings.
Other former fintech darlings, like Block Inc., Affirm Inc. and Adyen NV also jumped on Wednesday, supported by the relief rally in PayPal as well as a broader rebound in the stock market.
Many analysts note that the secular trends that catapulted fintech stocks to such lofty heights in 2021—the rise of e-commerce, mobile payments, peer-to-peer payments, buy-now-pay-later, and more—are still in place.
But like any growth story, there is a reasonable price and an exorbitant price. The reaction in fintech ETFs to PayPal’s mixed results suggests that prices are closer to reasonable than they were before.
Follow Sumit Roy on Twitter @sumitroy2