There has been a sea change in the mode of payments over the years from cash to cards, to digital wallets and cryptocurrency transactions. The change has been driven by rising Internet penetration and the adoption of smartphones.
The financial technology market is expected to be worth $161.2 billion by 2026, according to an IndustryArc report.
Using the TipRanks stock comparison tool, let us compare two fintech companies, Paysafe and Fidelity Information Services, and see how Wall Street analysts feel about these stocks.
Paysafe Ltd. is a specialized payments platform that facilitates transactions for businesses and consumers. The company operates across three business segments including its digital wallet segment, eCash solutions, and integrated processing segment.
When it comes to the iGaming market, Paysafe’s iGaming services are currently live in 14 states in the United States and used by 34 operators, as of December 31.
The company’s digital wallet includes brands like NETELLER and Skrill, while its eCash solutions segment includes digital currency brands like Paysafecash and paysafecard. Paysafecard supports payments across gaming merchants to accept eCash payments.
Skrill digital wallet supports a wide array of eCommerce platforms including Wix, Magento, Shopify (SHOP), and WooCommerce. The company’s integrated processing segment includes Paysafe and Petroleum Card Services brands that focus on card not present and card-present solutions for small to medium-size business (SMB) merchants.
In Q1, the company posted revenues of $377.4 million, up 5% year-over-year while net loss narrowed to $49.1 million versus a net loss of $51.1 million in the same quarter last year. The company’s adjusted EBITDA was relatively flat at $113.2 million.
At the same time, total payment volume (TPV) rose 8% year-over-year to $27.7 billion.
Late last month, Cowen & Co. Georgios Mihalos initiated coverage of PSFE with a Buy rating and a price target of $15 on the stock. Mihalos stated in a note to investors, “We see PSFE’s B2C revenue streams as a key differentiator relative to peers, with an opportunity to capitalize on the fast growing, but still nascent US iGaming opportunity.”
According to Mihalos, more than 35% of PSFE’s iGaming revenue comes from Digital Wallet and eCash, plus some from its Integrated Processing segment. The analyst wrote that the iGaming market is expected to grow at a compounded annual growth rate (CAGR) of approximately 45% and will represent a total addressable market (TAM) deposit volume between $33 billion to $49 billion by 2025.
The analyst expects PSFE to benefit from the iGaming market growth “driven by even modest deposit volume penetration (single digit) and success selling gateway and value-added services to online casinos/platforms.”
Mihalos added that even if Skrill accounted for just 5% of the estimated iGaming deposit volume in 2025, it would still provide around $70 million in revenues. The analyst also expects “PSFE to supplement high single to low double digit normalized top line growth (~10%) with strategic tuck-in acquisitions to further enhance growth.”
For Q2, the company has projected revenues between $365 million to $385 million while FY21 revenue is estimated to fall in the range of $1.53 to $1.55 billion. PSFE expects adjusted EBITDA to land between $110 million to $120 million in Q2 while in FY21, it is projected to range between $480 million to $495 million. (See Paysafe stock chart on TipRanks)
Overall, the analyst expects PSFE to deliver “~10% organic top line growth with low teens-adj. EBITDA growth over the longer term.”
Consensus among analysts on Wall Street is a Strong Buy based on 6 Buys. The average Paysafe price target of $16.33 implies approximately 45.2% upside potential to current levels.
Fidelity National Information Services (S&P 500: FIS)
FIS is a provider of technology solutions for banks, merchants, and capital markets firms globally. The company operates in three business segments including merchant solutions, banking solutions, and capital market solutions.
The Merchant segment enables merchants to accept card-based payments including electronic payments, contactless cards and a mobile wallet that originates at a physical point of sale, including card-not-present payments in eCommerce and mobile environments.
The Banking solutions segment offers core processing software, transaction processing software and complementary applications and services to financial institutions and has clients in around 100 countries.
Fidelity’s capital markets solutions segment serves financial services clients with an array of buy- and sell-side solutions including applications for recordkeeping, data and analytics, trading, financing, and risk management.
FIS generates a majority of its revenues through a combination of transaction fees, software license fees and processing, technology, and professional services. The majority of the company’s international revenues is generated through clients in the U.K., Germany, Australia, France, Canada, Brazil, and India.
In Q1, FIS posted revenues of $3,223 million, up 5% year-over-year, and a diluted loss of $0.6 per share versus diluted earnings of $0.02 per share. The company reported adjusted earnings of $1.30 per share, up 2% year-over-year.
In the second quarter, FIS expects revenues between $3.36 billion to $3.39 billion while diluted EPS is expected to come in between $0.55 to $0.65 per share. In FY21, revenues are projected to vary from $13.65 billion to $13.75 billion, and diluted EPS is expected to land between $1.30 to $1.60 per share. (See Fidelity National Info Services stock chart on TipRanks)
Late last month, Mizuho Securities analyst Dan Dolev reiterated a Buy and a price target of $185 on the stock. The analyst was optimistic about FIS’s Q2 results after analyzing “US and UK card volume data shows FIS’s 2Q21 merchant acquiring organic revenue growth could exceed 40%, which would offer ample upside to management’s guidance of 26-31% (or 30-35% including tax shift tailwind).”
According to Dolev, in 2020, “FIS’s merchant acquiring volumes grew below the blended growth of Visa’s US payments volume (est. 85% of FIS mix) and UK card spend (est. 15% of FIS mix). But this was not always the case, and we expect this anomaly to slowly return to its historical trends as the US and UK economies normalize.”
The analyst used a proprietary monthly volume analysis to evaluate Visa’s expected volumes in the United States in the calendar second quarter (C2Q) and expects these to grow 41% year-over-year in C2Q.
Dolev also used the U.K.’s trade association and retail spend data to predict card volumes in the United Kingdom and expects U.K. volumes to grow 25% to 30% year-over-year in C2Q.
Consensus among analysts on Wall Street is a Moderate Buy based on 11 Buys and 4 Holds. The average Fidelity National Info Services price target of $170.80 implies approximately 17.6% upside potential to current levels.
It is important to note here that FIS is a competitor of PSFE when it comes to processing services for merchants.
While analysts are bullish about PSFE, they are cautiously optimistic about FIS. Based on the upside potential over the next 12 months, PSFE seems to be a better Buy.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.