5 Mobile Payments Stocks to Grab Major Growth

Square

• Market value: $96.1 billion
• Analysts' average long-term (LT) earnings growth rate: 35.7%
• Analysts' ratings: 22 Strong Buy, 7 Buy, 10 Hold, 1 Sell, 2 Strong Sell

Square (SQ, $208.33) is one of the first names that comes to mind when thinking of mobile payments stocks. The company's third-quarter net loss of $3 million may have disappointed investors; however, its heightened investment in its digital Cash App payment platform during the period could generate millions more users.

The San Francisco-based fintech stock – which processes card payments of more than $100 billion annually – is unveiling new products and enhanced services to attract merchants and add to its 70-plus-million annual transacting active Cash App customers. Square's mobile payment service, Cash App, allows users to transfer money to one another using their mobile devices.

For the three months ended Sept. 30, Square reported $3.8 billion in revenue, up 26.7% from the same quarter a year ago, and gross payment volume (GPV) of $45.4 billion, a 43% year-over-year increase. This was led by jumps of 48% and 33%, respectively, in gross profit for its Seller and Cash App ecosystems. Square reported the $3 million net loss on an unadjusted basis, down from a profit of $37 million in the same quarter a year ago, as it invested more heavily in product development.

"SQ is a leading payments player that is capitalizing on the secular trends driving growth in consumer and business payments," says Needham analyst Mayank Tandon (Buy).

"We expect the Seller and Cash App ecosystems to help Square generate outsized revenue, gross profit and EBITDA [earnings before interest, taxes, depreciation and amortization] growth over the coming years. We recommend the name for aggressive growth portfolios looking for exposure to the secular trends driving digital payments," he adds.

During the third quarter, the company launched Cash App Pay – a mobile-friendly payment app that lets customers pay Square vendors straight from their phones.

Additionally, Square began offering its peer-to-peer payment app – a rival of PayPal's (PYPL) Venmo – to a new demographic: Teenagers (ages 13 to 17), with their parents' permission. This tool has the potential to target 20 million new users in the U.S., according to Square.

"By expanding Cash App to families, we are able to provide teens with a seamless way to spend, send and save the money they receive," management wrote in a letter to shareholders. "We believe the combination will more deeply connect our Seller and Cash App ecosystems, accelerate our strategic priorities and allow us to deliver even more compelling products and services for consumers and merchants."

Square is also testing a Cash App feature that allows users to borrow as much as $200. In addition, Cash App launched mobile check and paper money deposits that allow customers to scan checks and add physical cash to their Cash App balance at more than 30,000 participating retailers across the U.S. including Walgreens (WBA) and Family Dollar.

PayPal

• Market value: $217.2 billion
• Analysts' average LT earnings growth rate: 19.4%
• Analysts' ratings: 28 Strong Buy, 12 Buy, 5 Hold, 1 Sell, 1 Strong Sell

Another key player among mobile payments stocks is PayPal (PYPL, $184.89). And the company's new partnership with Amazon.com (AMZN) to allow customers of the online retailer to pay for purchases with PayPal's Venmo mobile payment service made headlines in its third-quarter earnings announcement.

In 2022, Amazon will permit Venmo's more than 80 million social-oriented users to pay with the PayPal-owned digital payment platform at online and mobile checkout. Amazon is just the latest retailer to adopt Venmo digital payments, joining the likes of Macy (M) and CVS Health (CVS).

"In addition to our Amazon news, we are very pleased to say that Walmart (WMT) now presents PayPal as a checkout option for both their grocery and marketplace business, and GoFundMe added PayPal to their checkout flow with Venmo to follow in the coming months," said Dan Schulman, president and CEO of PayPal, in the company's third-quarter earnings call.

PayPal and Venmo are "two-sided" global platforms for digital payments. PayPal has been utilized primarily for payments of purchases from merchants (B2C) whereas Venmo is more for peer-to-peer (P2P) transactions.

The San Jose, California-based parent for both digital platforms, PayPal, said Venmo is expected to deliver $900 million in revenue this year.

"Venmo has significantly evolved from once being a predominantly P2P platform to where it is today as a digital wallet with multiple monetization levers, as the platform continues to morph into a 'super app,'" BofA Securities analyst Jason Kupferberg (Buy) wrote.

For the three months ended Sept. 30, PayPal posted revenues of $6.18 billion, up 13% year-over-year, but still short of analyst's consensus estimate of $6.23 billion. However, PayPal's adjusted earnings of $1.11 per share for the quarter was up 3.6% from the same quarter a year ago and came in above the consensus estimate for earnings of $1.07 per share.

"Growing transaction and other value-added services' revenues drove year-over-year revenues growth in the reported quarter," according to Zacks Equity Research.

Over the three-month period, PayPal added 13.3 million new active accounts making the total number of active accounts 416 million – a 15% year-over-year improvement.

"The strength of PayPal's two-sided platform and ubiquity in our core markets has set us up to grow at scale, expand our work with existing merchants and attract new partners," Schulman said.

Fiserv

• Market value: $63.7 billion
• Analysts' average LT earnings growth rate: 16.7%
• Analysts' ratings: 19 Strong Buy, 7 Buy, 5 Hold, 0 Sell, 0 Strong Sell

Fiserv (FISV, $96.52) earnings topped expectations for the third quarter in which it augmented its digital payout options.

The Brookfield, Wisconsin-based global provider of payments and financial services technology solutions added PayPal and Venmo as digital wallet payout options on its enterprise platform Carat. This, says Fiserv President and CEO Frank J. Bisignano, cements the enterprise platform as a leader in digital payouts, with more than 10 billion processed year-to-date.

"We are extending our bill capabilities beyond the financial institution channel as an enabler of PayPal's bill payment functionality within PayPal's new app," he adds. "We had good growth in our digital payments activity led by Zelle transaction growth of 75% in the quarter."

Additionally, Fiserv said it is partnering with its financial institutions clients to bring their buy now, pay later (BNPL) offerings to market. For instance, It teamed up with Synchrony Financial (SYF) to offer BNPL solutions on its card processing platform.

For the three months ended Sept. 30, Fiserv posted adjusted revenues of $3.96 billion, up 10% from the year prior. Earnings, adjusted for one-time gains and costs, were $1.47 per share – which were 22.5% higher from the year-ago period and exceeded analysts' consensus estimate of $1.44 per share.

For those looking for a stamp of approval on mobile payments stocks, Argus Research analyst David Coleman reaffirmed FISV as a Buy following its third-quarter results. "The pandemic has created opportunities for Fiserv, as many consumers have actively sought out contactless payment methods to reduce the risk of infection," Coleman wrote in a note.

"We look forward to bringing new solutions to merchants as they continue to advance their payment acceptance capabilities to meet changing customer expectations in a rapidly evolving post-COVID world," says John Gibbons, head of EMEA at Fiserv.

Mastercard

• Market value: $309.4 billion
• Analysts' average LT earnings growth rate: 24.9%
• Analysts' ratings: 22 Strong Buy, 10 Buy, 5 Hold, 0 Sell, 0 Strong Sell

Mastercard's (MA, $314.92) third-quarter revenues rose 30% over the same period last year driven, in part, by domestic spending, cross-border volumes – which are now back at 2019 levels – and contactless transactions.

For the quarter ending Sept. 30, the Purchase, New York-based company reported revenue of $5.0 billion and net profit of $2.4 billion compared with revenue of $3.8 billion and profit of $1.5 billion for the same quarter last year.

In its third quarter earnings call, Mastercard said contactless transactions represented 48% of in-person purchase transactions globally, up from 45% from the previous quarter.

MA will be a major benefactor from the long-term secular shift toward electronic forms of payments and new technology, says William Blair analyst Robert Napoli. These include mobile devices, mobile point-of-sale terminals and e-commerce.

"Technology is helping accelerate growth at Mastercard and the shift to electronic forms of payments, such as contactless payments and e-commerce," Napoli adds. He has an Outperform rating on the stock, which is the equivalent of a Buy.

Going forward, MA is poised to profit from the buy-now, pay-later trend. The company introduced Mastercard Installments in late September as its proprietary BNPL platform that enables banks, lenders, fintech and wallets to seamlessly provide payment solutions to consumers and merchants.

"Our consumers will be able to access buy-now-pay-later offers through their bank's mobile banking app at the point of checkout and soon directly through Click to Pay," Mastercard CEO Michael Miebach said in the company's third-quarter earnings call. "We've seen strong interest from players on all sides of the ecosystem and look forward to growing our partnerships in this area."

Analysts certainly think MA – which is a stalwart of the Berkshire Hathaway portfolio – is one of the mobile payments stocks poised for long-term growth, targeting earnings upside of 24.9% over the next three to five years.

Affirm Holdings

• Market value: $35.6 billion
• Analysts' average LT earnings growth rate: -34.2%
• Analysts' ratings: 4 Strong Buy, 3 Buy, 5 Hold, 1 Sell, 0 Strong Sell

Affirm Holdings (AFRM, $126.68) is the youngest of the mobile payments stocks featured here, having gone public in January 2021. The company bested Wall Street's fiscal first-quarter expectations in mid-November and announced an expanded partnership with e-tail giant Amazon.com.

AFRM's revenue rose to $269.4 million in its fiscal first quarter, up 55% from the year prior. And while the company is not yet profitable, active merchants on its platform surged to 102,000 from 6,500 in the year-ago period and gross merchandise volume jumped 84% to $2.7 billion.

Additionally, Affirm's active consumers grew 124% year-over-year to 8.7 million. Plus, transactions per active consumer increased 8% annually to 2.3.

"We believe the magnitude of Affirm's beat and raise (on all key metrics) this early in the fiscal year was greater than expected,'' says BofA Securities analyst Jason Kupferberg (Buy). He's also upbeat toward the company's "wide-ranging product roadmap that should enable AFRM to be a long-term winner in the burgeoning BNPL space, while also evolving into a broader provider of fintech services."

The buy-now, pay-later industry mushroomed during the pandemic when homebound consumers shifted to shopping online and sought pay-later options. BNPL firms charge merchants a fee for offering their customers small, point-of-sale loans that are paid back in interest-free installments, bypassing credit checks.

Kupferberg also points to the company's expanded relationship with Amazon as a reason to be optimistic.

The San Francisco-based fintech firm said in August that it teamed up with Amazon to allow U.S.-based customers to use Affirm's payment network at checkout to split payments of $50 or more into installments. As part of the expanded deal announced alongside its quarterly results, AFRM is now the e-commerce retailer's only credit card alternative in the BNPL space in the U.S. through January 2023. Affirm will also be embedded as a method of payment in Amazon Pay's digital wallet for all eligible domestic merchants.

In addition to AMZN, Affirm is partnered with Walmart, Peloton Interactive (PTON) and Shopify (SHOP) to allow merchants to offer installment loans on the products they sell.

"Now, we have integrated relationships with partners representing approximately 60% of U.S. e-commerce," said Affirm's Chief Financial Officer Michael Linford in the company's earnings call. "Given Amazon's massive consumer base, we expect this partnership to help create a steep change in our network scale."

Affirm Founder and CEO Max Levchin agrees. "These deep connections and our partnerships with merchants drove growth in GMV, frequency of engagement and revenue."