Fintech stocks have been hammered this year as the market continues to punish companies pegged to future growth prospects over current profitability. But there still are some bright spots in the space, according to Eight Capital analyst Adhir Kadve, whose just-released fintech commentary features three Canadian names, all with Buy ratings.
The fintech conference Money 20/20 was held last week in Las Vegas, with Kadve attending and noting in his comment the conference’s focus on Embedded Finance as a key theme along with discussions on the macro-level uncertainty in the economy and its impact on the sector.
Kadve said he came away from the meetings with a better picture of how three companies in Eight Capital’s coverage universe are impacted by current developments in the space, namely, Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials TSX:LSPD), Payfare (Payfare Stock Quote, Charts, News, Analysts, Financials TSX:PAY) and Mogo Inc (Mogo Stock Quote, Charts, News, Analysts, Financials TSX:MOGO).
As for Lightspeed, Kadve said the Money 20/20 event spoke of how innovation in the payments space continues to accelerate but that integrated payments especially in the restaurant industry remains under-penetrated, a sweet spot for LSPD, the analyst said. Kadve thinks that Lightspeed is primed to continue winning market share in the complex restaurant market, with its platform offering merchants a broad set of products and modules, with significant cross-selling and up-selling opportunities.
“The under-use of technology is poised to change over the upcoming years, as macro-uncertainty and labor shortages are leading to greater efficiency requirements within the restaurant industry, thus spurring greater adoption of technology. We think these trends provide tailwinds to Lightspeed’s software + payments business model,” Kadve wrote in his October 31 report.
The analyst also said Lightspeed’s in-house Capital offering, which was bolstered by the acquisition of US-based ShopKeep, should prove to be a growth engine within the embedded finance surge. Kadve said while LSPD currently offers its Capital product through a partnership with Stripe, the company now has the key capabilities to bring the product fully in-house.
“Lightspeed will be expanding the availability of its Capital offering throughout this and the next calendar year, and we believe once scaled, the Capital product will likely be margin accretive,” Kadve wrote.
On Payfare, Kadve said another theme at Money 20/20 was open banking, the framework that gives permissioned access to an individual’s full financial data to other financial institutions or third parties. The trend has had strong traction in Europe but is lagging in North America, something that could be changing, Kadve said, as he saw “outsized support” for the initiative at the conference coming from private companies and US regulators.
That’d be good for Payfare, Kadve said, as open banking would give potential creditors a better picture of an individual’s financial profile and thereby make the loan adjudication process more efficient.
“In our view, Payfare would be a key beneficiary of this theme. While Payfare’s platform currently works with Plaid to enable a better view of a user’s finances, any regulatory movement to adopt open banking in the US would further enhance this view. Recall that a product that excites us on Payfare’s roadmap is the ability to extend micro-credit to its broad base of users. We believe that a micro-credit product along with open banking has a significant impact on Payfare and its partners,” Kadve wrote.
On the digital asset front, one of Mogo’s product offerings, Kadve pointed to a McKinsey consumer trends survey which found the adoption of digital assets to be generally flat year-over-year, with a slight uptick in ownership levels from 13 per cent of respondents to 15 per cent. The analyst said given the broader pullback in cryptocurrencies, the appearance of stability in ownership and ongoing interest is encouraging. Kadve also noted that the survey found respondents to give ‘investment purposes’ as the most common reason for ownership of digital assets, while volatility in the sector was found to be the top reason for non-ownership.
“While there is no direct read-through to our coverage universe, we note that Mogo continues to have exposure to the digital asset industry via its 37 per cent stake in Coinsquare,” Kadve said.
With the update, Kadve reiterated the following ratings and target prices for the three stocks. All projected returns are as of the report’s publication date.
Stock: Lightspeed Commerce
Target Price: $47.00
Projected one-year return: 79 per cent
Target Price: $17.00
Projected one-year return: 278 per cent
Target Price: $3.25
Projected one-year return: 207 per cent