It’s been a big year for fintech in 2021. Several new public fintech stocks were driven to mega valuations before falling back in the last two months of the year. On the whole, though, most fintech companies saw their stocks soar in 2021. In 2022, the sector faces a new dynamism, in large part because the economic picture has changed and continues to change very rapidly, but there is still Lots of excitement. Here are the three big questions for fintech stocks in 2022.
1. How will credit quality hold up?
Many fintech companies offer credit to consumers, whether it’s credit cards, loans, or Buy Now Pay Later (BNPL) products that consumers use to purchase and pay for a good or service via multiple interest-free payments. But a lot of fintech companies like cockyAnd SoFi, And Confirms It wasn’t announced until after the COVID-19 pandemic began. Credit conditions were incredibly benign because consumers saved so much, received stimulus payments, and the Federal Reserve and the federal government pumped trillions of dollars into the economy.
But things are changing now. Savings rates are down, the Fed has scaled back its bond-buying program, stimulus and improved unemployment benefits have run out, and Fed members have indicated there may be several rate hikes this year.
This may start to put stress on the consumer. Investors will likely be eager to get an in-depth look at how credit quality continues for AI-backed loans and machine learning lending platforms. Many fintech lenders have promised big things. Although it has delivered in some ways, many of its loan portfolios have not gone through the cycle of rising interest rates.
Specifically, BNPL will be under the microscope, as there have already been reports of a large number of users delaying payments. Although many of these companies do not hold loans on their balance sheets, investors and partners may stop buying these loans if they start defaulting at higher than expected rates.
2. How will consumer demand be?
Whether it’s on the spending or debt side, it will be interesting to see how consumer demand changes in 2022. Bloomberg I recently reported that consumer spending in major cities was up 15% compared to 2019. Due to a lack of spending in 2020 and the infusion of money into the system, consumers had excess savings that they were eager to spend more than a year after they stopped working. Inside amid the COVID lockdowns. They took vacations when they could, went back to restaurants and bars, had weddings, and went to concerts. I’m sure the new variables of COVID will put a short cut in spending, but mass vaccination has enabled the world to get much closer to normal than it was earlier in the pandemic.
However, there are many sectors, such as travel and accommodation, that have not fully recovered. Although consumers are currently doing well, they are not as flowing as they used to be, and inflation has driven up prices, which could hamper demand. On the flip side for consumer fintechs, lower savings leads to more lending, and credit card applications have recently reached pandemic level. Despite this, economic growth this year remains in question.
Not so long ago, some banks started lowering GDP estimates for 2022. Goldman SachsFor example, the US economy is still expected to grow by 3.8% in 2022, which is a very strong rate compared to historical growth. If Goldman’s outlook is affected, the impact of inflation and higher rates may not be so bad. But with so many conflicting economic factors in play, demand is a major trend to watch with regards to fintech.
3. What role will evaluation play?
Fintech companies such as Affirm and Upstart — and SoFi to a lesser extent — saw their stock prices soar last fall to sky-high valuations, which quickly dented as economic expectations shifted. Now there is debate over whether these companies have been oversold, with Affirm and Upstart down nearly 43% and more than 60%, respectively, since the beginning of November.
After the sharp declines, Affirm is trading at about 19 times futures revenue, and Upstart is trading at about 10 times futures revenue. That’s more reasonable than it used to be, but again, it could also be a forecast of tougher market conditions this year. Buying stocks of fintech companies with cheaper valuations makes sense, but it will be interesting to see if investors are more likely to pile into undervalued fintechs or those with higher valuations. Another possibility is for the sector to continue to move as a group, which it largely did during the last two months of 2021.
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