Stock Market Crash Warning: 3 Fintech Stocks to Avoid
These fintech stocks to avoid are heading toward further losses if the macroeconomic environment doesn’t change soon
Financial technology, or fintech stocks, is a relatively new and fast-growing sector in which to invest. The sector encompasses many of the facets of modern banks, including payment facilitation, wallets, checking accounts, saving accounts, credit cards and even loan facilities.
The Federal Reserve’s decision to raise interest rates in 2022 not only led to costly borrowings on the consumer side but fintech companies that depend on loans to run their business have also been impacted. Persistent inflation in the United States has also staved off any hopes of rate cuts anytime soon.
U.S. equities just ended their worst month in 2024, and if the macroeconomic environment continues to exhibit this level of uncertainty, investors can expect further losses. Below are three fintech stocks to avoid in case of a market crash.
Marqeta (MQ)
Source: Chart by Josh Enomoto
Card issuing and transaction processing firm Marqeta (NASDAQ:MQ) makes the first entry on this list. A number of merchants, both small and larger, with card programs have benefited from Marqeta’s open API cloud payment infrastructure. Leveraging Marqeta’s services, businesses can create and manage their own card programs — this includes issuing cards and overseeing payment transactions.
Unfortunately, Marqeta ended 2024 on a sore note. The fintech firm reported Q4 and full-year 2023 earnings in late February, and its net revenue figure decreased 10% due to reduced pricing embedded in the contract renewal with Block’s (NYSE:SQ) Cash App. Profit metrics, including EBITDA and net income, also disappointed investors. In essence, Marqeta slid further into being a loss-making business.
In 2024, MQ’s shares have plummeted 20.5% as of the end of April, erasing the relatively minimal gains the stock had received toward the end of 2023. So many small businesses rely on Marqeta’s platform. Still, a slowing economy and higher interest rates have made it harder for small-to-medium sized businesses (SMBs) to invest in new products that could benefit their businesses in the long term. This possibly spells another year of slow growth for Marqeta, and if a market crash does happen, the stock will likely suffer even more.
Affirm (AFRM)
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Affirm (NASDAQ:AFRM) is a buy now, pay later fintech firm and takes the second spot on this list of fintech stocks to avoid. If you’ve made purchases through an online website or merchant, you have probably seen the option to pay for an item in installments at either a low interest rate or no interest at all.
While consumers aren’t really thinking about how these split payments are possible, current investors or potential ones in Affirm should be aware. Firms in this business have a cost of capital to manage, meaning they rely on various loan facilities to make these transactions work efficiently.
Higher funding costs have certainly put pressure on Affirm’s margins. In their fiscal year 2024, which ended June 30, 2023, Affirm’s net loss expanded significantly with funding costs and provisions for credit losses increasing 163% and 30% on a year-over-year basis. First and second quarter 2024 costs have trended in a similar manner.
Affirm’s share price has fallen 35.1% as of the end of April. A period of elevated rates will create more costs for the company and its investors in the future.
SoFi Technologies (SOFI)
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The final stock on this list is SoFi Technologies (NASDAQ:SOFI), the student and personal loans platform. SOFI shares have plummeted 31.9% as of the end of April, and the reasons why are pretty straightforward. Higher interest rates, like for the other entries in this article, create a heightened level of uncertainty for SoFi’s business.
Although higher interest rates do allow SoFi to generate more interest income from loans, the default rate on SoFi’s loans could increase as borrowers find it increasingly difficult to pay their interest payments. Moreover, in the first quarter of 2024, SoFi announced a $750 million convertible debt capital raise that spooked current shareholders.
The lending platform’s slowing growth and ailing profitability leave a lot to be desired these days, and investors would do well to avoid it.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
