Fintech investors must wait for market to gain conviction amid sector rotation, analyst says
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Morgan Stanley analyst James Faucette believes that the recent lag in payment stocks such as, Visa (NYSE:V), Mastercard (NYSE:MA), PayPal (NASDAQ:PYPL) and Affirm (NASDAQ:AFRM), still have a ways to go before the market gains conviction again, he writes in a note to clients.

Even as the analyst sees "substantial opportunity" in payment stocks, some of his macro concerns include waiting for a return of international tourism, less capital inflows and waiting for interest rates to stabilize.
For Visa (V) and Mastercard (MA), "earnings could be materially higher if international tourism were to recover fully," Faucette notes. But as COVID-19 continues to spread and weighs on tourism trends, "we anticipate that the market will likely be conservative in extrapolating generally improving travel conditions," he adds.
Recall in Oct. 2021 Evercore ISI pointed to continued strength in the air travel recovery. However, the robust trend can be impacted from the uncertainty surrounding COVID-19.
Moreover, the competitive landscape for legacy payment processors like Fidelity National (NYSE:FIS), Fiserv (NASDAQ:FISV) and Global Payments (NYSE:GPN) is likely to intensify as long-term investment capital availability is expected to remain high, the analyst highlights.
Additionally, the anticipated increase in interest rates will likely "only very small consequences to payment volumes or the underlying profitability," Faucette writes. But rapid changes in implied interest rates can impact the relative performance of payment stocks. Buy Now, Pay Later firm Affirm (AFRM) has direct interest rate exposure.
On a YTD basis, most payment stocks trade in a sea of red as the S&P 500 takes a bearish turn, with speculators rotating from growth to value.
Fintech stocks that are faring the worst so far on Friday include: PayPal (PYPL
-4.7%), LendingClub (LC
-2.0%), Block (SQ
-4.2%), Lightspeed Commerce (LSPD
-4.4%), SoFi Technologies (SOFI
-4.5%) Upstart Holdings (UPST
-9.0%) and Robinhood (HOOD
-4.2%).
Previously, (Jan. 5) PayPal becomes Evercore ISI's top payment pick for 2022.