Fintech

SoFi and Pagaya: Jefferies Picks the Best Fintech Stocks to Buy Before Earnings

Published

9 months ago

22 July, 2024

Despite recent losses, the tech-heavy NASDAQ remains up nearly 16% year-to-date. With tech showing solid growth, it’s a good time to explore tech stocks, especially in specialized areas like financial technology.

Fintech exists at the nexus of banking and high-tech. Fintech companies provide a wide range of banking services, including checking and savings accounts, lending and borrowing, money management, and even investments, all offered online, including on mobile devices. From the customer’s perspective, fintechs offer the convenience of banking anywhere, anytime, without the high overhead of operating physical branches.

Covering fintech for Jefferies, 5-star analyst John Hecht noted, “Fintech stocks outperformed this quarter as industry trends and evolving rate expectations were net positives. Origination volumes stabilized, lenders remained cautious given elevated (but stable) DQ formation and slowing consumer spending, while funding markets remained supportive for issuers.”

In this context, we used the TipRanks database to seek a broader view of the market on SoFi (NASDAQ:SOFI) and Pagaya (NASDAQ:PGY), two of Hecht’s “Buy” picks in his note. The Jefferies analyst advises investors to buy into these stocks ahead of their upcoming earnings reports; let’s take a closer look and find out why.

SoFi Technologies

The first fintech we’ll look at is SoFi, which gets its name from its niche: social finance. SoFi incorporates the interactive online experience of social media into fintech and digital banking.

SoFi is licensed as a bank, and its customers can access the usual banking services, take out personal, home, or auto loans, open credit card accounts, invest money, hold savings or checking accounts, refinance, or cancel existing third-party debt such as student loans. The company describes itself as a “one-stop shop” for personal finance and boasts more than 8 million members.

The company has funded more than $73 billion in loans for its customers, who have paid off approximately $34 billion in personal debt and earned more than $34 million in personal rewards. As a licensed bank, SoFi is covered by the FDIC, and members’ personal checking and savings accounts are protected up to the standard level of $250,000.

For the first quarter of 2024, SoFi reported a total of 8.132 million members, reflecting a quarterly gain of 622,000 and a 44% increase year-over-year. Although the company’s revenues fell from Q4 to Q1, they still came in just under $581 million, marking a 26% increase year-over-year and beating estimates by more than $21 million. SoFi also posted GAAP earnings of 2 cents per share, beating estimates by a penny.

Looking ahead to Q2 earnings, we find that most analysts are expecting earnings of $0.01 per share, based on revenues that could approach $566 million. Hitting that level of revenue would equate to a 15% year-over-year gain. SoFi’s Q2 earnings call is scheduled for the morning of July 30.

Turning to Jefferies’ view, senior analyst Hecht writes: “2024 remains a transition year for SOFI with an overall more conservative lending position. That said, management is bullish on the Tech and Money segments and expects 20% and 75% growth, respectively. Management expects the segments combined to contribute more than 50% of total revenue in FY24…”

Hecht goes on to outline his thoughts on SoFi’s likely results and what investors can expect, adding, “Our EPS of $0.01 is in line with Wall Street. We expect 2Q24 adjusted net sales of $560 million, at the midpoint of $555-565 million guidance. This translates to 15% year-over-year growth, driven by loan receivables growth of ~29% year-over-year coupled with higher yields, along with expected growth from the technology platform. We are expecting adjusted EBITDA of $120 million, at the midpoint of $115-125 million guidance, and net income of $6 million, which is toward the lower end of $5-10 million guidance.”

These comments inform Hecht’s Buy rating on the stock, and his $12 price target implies about 61% upside over the next year. (To look at Hecht’s track record, Click here)

The rest of the Street is less confident, however; based on 4 Buys, 9 Holds, plus 3 additional Sells, the stock has a consensus rating of Hold (aka Neutral). Shares are selling for $7.47, and the average price target of $8.15 suggests the stock has 9% upside potential in a year. (See SOFI Stock Forecast)

Pagaya Technologies (PGY)

The second fintech on our radar now is Pagaya, a company that is applying AI technology to the credit system. In short, Pagaya uses AI and machine learning methodologies, along with big data analytics, to give institutional lenders new and more accurate ways to review credit applications. The company works with a wide range of financial institutions, including banks, pension funds, and insurance companies, applying data-driven decision-making to improve people’s access to credit.

At its core, Pagaya aims to fill in the blind spots that legacy underwriting systems miss. The company has an AI network that analyzes credit applications and credit applicants to provide more precise risk assessments for better risk management. The company, founded in 2016, operates internationally, with a suite of 30 partners and employs over 600 people, including top data scientists. Since its founding, Pagaya has reviewed approximately $2 trillion in credit applications.

Pagaya shares have been on a downward trajectory over the past year; the stock is down 45% over the past 12 months. At the same time, Pagaya’s revenue has been on an upward trajectory over the past few quarters. The company’s 1Q24 revenue came in at $245 million, up 31% year over year and $17.23 million above estimates. The company’s bottom line, non-GAAP earnings of 20 cents per share, were 4 cents better than expected. In other positive metrics, the company’s Q1 net volume was a company record, at $2.42 billion, and $20 million in cash flow from operations marked the third consecutive quarter of positive cash generation.

Forecasters expect Pagaya to report $239 million in revenue in Q2, with EPS of 28 cents per share. Q2 results are due on August 9.

For Hecht, a key takeaway here is Pagaya’s recent growth. He says of the fintech company, “Pagaya remains on a strong growth trajectory. Management reiterated its plan to add 2-4 new lending partners annually. Growth areas include its auto and POS businesses, and we expect PGY to lean into them as the year progresses. Investor focus in the quarter remains on PV brands and the company’s capital efficiency (with respect to increasing ABS retention).”

Continuing, the analyst adds of Pagaya’s likely Q2 results, “For the quarter, we expect adjusted EPS of $0.29 versus the Street’s adjusted EPS forecast of $0.24… We expect net volume of $2.3 billion, the midpoint of the company’s forecast for the quarter. Our total revenue and other income forecast of $237.9 million aligns with the Street’s $238.9 million and is within the company’s forecast for the quarter… Our 2Q24 adjusted EBITDA forecast is $42.7 million, which is within guidance, and our FY24 forecast remains at $173.5 million.”

Along with this optimistic outlook, Hecht gives PGY shares a Buy rating, with a $30 price target that suggests a solid 109% gain in the coming months.

All in all, Wall Street rates PGY a Moderate Buy, based on 7 reviews including 5 Buys and 2 Holds, and the average price target of $23.17 suggests a 58% upside over the one-year horizon. (See PGY Stock Forecast)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best stocks to buya tool that unites all of TipRanks’ stock insights.

Disclaimer: The views expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

9 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

9 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

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Fintech

M2P Fintech About to Raise $80M

Published

9 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

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Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

9 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

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Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”