The world of internet memes reminds me of financial bubbles. The Harlem Shake Meme was video craze in 2013 where groups would dance to “Harlem Shake” by Baauer. These videos exploded in popularity and proliferated on YouTube. Then, just as suddenly, the internet’s attention moved elsewhere — just like a typical bubble- and bust chart from the stock market.
Fintech companies suffered a ferocious bear market in August, especially the payment-processing stocks. Payment processors aim to enhance and smooth the process of sending and receiving money both online and in-person. Big money is at stake, given the multi-trillion-dollar size of the market and the inevitable market share movement from “offline” payments like cash and checks to “online” payments like credit cards.
It isn’t all doom and gloom, though. In fact, unlike many of their software-as-a-service peers, fintech payment processors are profitable and growing. They are just growing slower and with more competitive pressure than investors had anticipated. COVID-19 lockdowns and behavior changes pulled forward growth that most mistook for a permanent acceleration.
PayPal is the attractive mid/large cap of the group. With more than $1.5 trillion gross payment volume, PayPal is one of the largest players in the space, and analyst expectations are for high single-digit revenue growth. Since PayPal stock has been consistently sold off since a peak of over $300 in 2021 to around $60 now, its valuation has retreated from an unachievable 64x enterprise value / EBITDA to its current modest levels of less than 9x.