The fintech sector, often celebrated for its innovative approach to traditional financial services, has propelled numerous startups into the spotlight with promises of high returns and disruptive potential. Yet, amidst these success stories, certain fintech firms have not lived up to the hype, burdened by operational challenges, regulatory pressures, and fierce competition that have stunted their growth and eroded investor confidence.
As per KPMG, the year 2023 marked a downturn in global fintech investment during 2023, with the lowest investment levels and deal numbers since 2017. Several factors contributed to this decline, including high interest rates, persistent inflation, geopolitical tensions in regions like Ukraine and the Middle East, and cautious investor sentiment toward valuations and exit opportunities.
As the market faces increasing volatility, discerning investors need to critically evaluate their portfolios, identifying which fintech stocks may be poised for a downturn. It’s essential to recognize these vulnerable stocks now and consider divesting before their issues lead to significant losses. Here are three fintech stocks that, due to their underwhelming performances and bleak outlooks, are top candidates to sell off this May.
SoFi (SOFI)
SoFi (NASDAQ:SOFI) has been under the scrutiny of investors and analysts over the past year, particularly because of its exposure to shifting macroeconomic conditions. SoFi’s business model is particularly sensitive to changes in interest rates and consumer financial health.
The bear view on SoFi stems from rising consumer loan delinquencies. This is compounded by expectations of a Federal Reserve rate cut, which poses a threat to SoFi’s net interest income.
In response to these challenging conditions, SoFi has adopted a conservative approach to loan originations, focusing on maintaining quality and managing risk. This has involved stringent underwriting standards and a cautious outlook on future lending activities.
Despite a 28% decline year-to-date in its stock price, SoFi has recently reported earnings that exceeded expectations for 2024. For Q1 2024, SoFi reported an EPS of $0.02, beating estimates by $0.01. The revenues stood at $580.65 million, a 26.18% increase year-over-year.
Coinbase (COIN)
Coinbase (NASDAQ:COIN) made a striking debut on the NASDAQ in 2021, with its shares initially surging to highs of $350. However, the excitement was short-lived as the broader cryptocurrency market faced downturns, with Bitcoin retracting from record levels.
Coinbase has struggled to maintain consistent profitability. The company’s revenue streams are highly dependent on transaction volumes that fluctuate with crypto market conditions.
Regulation remains a critical concern for Coinbase, as with all players in the cryptocurrency space. Coinbase has had to navigate these challenges, adapting its business practices to comply with regulatory requirements across different jurisdictions.
Despite the significant drop from its peak prices, Coinbase’s valuation remains high relative to its earnings and growth prospects. The stock’s trading multiples suggest that high future growth is already priced in, leaving little room for upside surprises. This mismatch between valuation and potential earnings growth makes COIN a less attractive investment at current levels.
Upstart (UPST)
Upstart (NASDAQ:UPST) aims to revolutionize the personal lending space by leveraging advanced algorithms to provide fairer, more accessible loan options. However, recent performance and forward-looking projections suggest a rocky path ahead.
The market’s reaction to Upstart’s financial health has been markedly negative, with the stock down about 40% since the start of 2024.
In response to the challenging market conditions, Upstart has scaled back some of its growth initiatives and focused on enhancing its core AI lending platform. Moreover, Upstart has tightened its lending criteria to mitigate risk associated with a potential increase in default rates, a prudent move given the uncertain economic outlook.
Upstart reported solid financial results for Q1 2024, with a total revenue of $138 million and a net revenue of $128 million. The company also made significant cuts in fixed expenses, reducing headcount expenses by approximately $20 million annually.
On the date of publication, Mohammed Saqib did not hold (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.