Fintech Headlines: October 24 - 30, 2022

Shopify shares surge as the company beats analysts’ expectations, Amazon will add PayPal's Venmo as a payment option, VISA and Mastercard earnings benefit from strong consumer spending

This Week in the Markets

This was the week of Big Tech earnings with Microsoft, Meta Platforms (fka Facebook), Alphabet (fka Google), Amazon, and Apple reporting their Q3 2022 results. I mean, the Bureau of Economic Analysis reported a 2.6% growth in U.S. GDP (U.S. GDP declined in the first two quarters of the year) and a 0.5% MoM increase in PCE Price Index, which was in line with economists’ forecasts (this is the “core inflation”, a metric closely monitored by the Federal Reserve officials in making their decisions about the interest rates), but no one seemed to care.

The earnings results were not great with Alphabet, Amazon, Meta, and Microsoft losing over $350 billion in combined market cap during the week. Meta, in particular, had its worst week since the IPO in 2012 with the company’s shares declining 23.7% (the company’s shares are now down 70% YTD). Nevertheless, Apple somehow managed to beat analysts’ estimates for revenue and profit, which seems to be the reason for the stock market rally on Friday. Or, perhaps, investors finally read the news about GDP and inflation. Markets finished in the green.

↗↗ Blend Labs (NYSE: BLND 0.00%↑): shares of the software vendor, servicing such mortgage lenders as Wells Fargo and U.S. Bank, advanced 27.60% during the week on no particular company news. The news this week was absolutely not promising for the industry with mortgage rates hitting their highest level in 20 years and pending home sales falling 10% from a month ago. You’d expect Blend shares to continue their decline (shares are down 88% since the company’s IPO in July 2021), yet the opposite happened. Go figure.

↘↘ LendingClub (NYSE: LC 0.00%↑): shares of the peer-to-peer lender that turned into a bank declined 5.03% during the week following the company’s earnings report. LendingClub managed to beat its own guidance on both, revenue ($305 million vs. $280-300 million) and net income ($43.2 million vs. $30-40 million), but guided for a sequential decline in Q4 2022. LendingClub retains part of the originated loans on its balance sheet and sells the rest to institutional investors. Apparently, the interest from institutional investors is weakening.

Next week will be very busy with many Fintech companies reporting their Q3 2022 results, including SoFi (NASDAQ: SOFI 0.00%↑), PayPal (NASDAQ: PYPL 0.00%↑), Block (NYSE: SQ 0.00%↑), Coinbase (NASDAQ: COIN 0.00%↑), Robinhood (NASDAQ: HOOD 0.00%↑), MercadoLibre (NASDAQ: MELI 0.00%↑), Bill (NYSE: BILL 0.00%↑), Lightspeed Commerce (NYSE: LSPD 0.00%↑) and Remitly (NASDAQ: RELY 0.00%↑).

✔️ Dow closes 800 points higher on Friday, registers fourth straight week of gains
✔️ GDP accelerated at 2.6% pace in Q3, better than expected as growth turns positive
✔️ US Core PCE Inflation Picks Up While Consumers Show Resilience
✔️ Key inflation gauge for the Fed rose 0.5% in September
✔️ Big Tech falters on dreary earnings and forecasts for Q4
✔️ ‘Safe port in the storm:’ Why investors rewarded Apple but fled its Big Tech peers
✔️ US Pending Home Sales Fall by Most in Two Years as Rates Rise
✔️ U.S. Mortgage Rates Top 7%, Highest in More Than 20 Years

Shopify Shares Surge as the Company Beats Analysts’ Expectations

It’s been a tough year for Shopify (NYSE: SHOP 0.00%↑): the company saw its shares plunge, as people started returning to offline shopping and the revenue growth slowed, it had to part ways with 10% of its staff, and its CEO and founder, Tobi Lütke, had to admit to making an incorrect bet that the pandemic-fueled e-commerce growth will last. On Thursday Shopify reported its Q3 2022 results, posting higher-than-expected revenue of $1.4 billion (vs. $1.3 billion expected), and a smaller-than-expected adjusted loss of $30 million (vs. $100 million expected). Shares rallied 17% following the release.

Shopify is mostly known for its e-commerce platform that powers millions of small and medium-sized merchants; however, the growth in recent quarters is primarily driven by the company’s Fintech businesses. Thus, Merchant Solutions Revenue (revenue from payment, lending, Shopify Markets, and SFN) grew 26% compared to the prior year, while Subscription Solutions Revenue (revenue from commerce platform subscription) grew 12% compared to the prior year. Merchant Solutions Revenue represented 71% of the company’s total revenue in the quarter. By the way, Shopify is also expanding into the world of offline commerce with Shopify POS.

What to learn more about Shopify? Read the company’s profile 👇🏻
“Shopify Profile: making commerce better for everyone”

Image source: Shopify Q3 2022 Investor Presentation

✔️ Shopify Reports Third Quarter 2022 Financial Results
✔️ Shopify Rises as Revenue Beat Signals Worst Days May Be Past
✔️ Shopify shares pop 17% on smaller-than-expected loss
✔️ Shopify shares surge as results beat eases e-commerce slowdown fears
✔️ Shopify is quietly becoming a power player in offline retail too

Amazon Will Add Venmo as a Payment Option

Amazon will enable Venmo as a payment option on Amazon.com and Amazon’s mobile app by Black Friday. The partnership between Amazon and Venmo’s parent company, PayPal (NASDAQ: PYPL 0.00%↑), was announced almost a year ago, but only now comes to fruition. The integration will enable more than 90 million Venmo customers to use the service at checkout, as an alternative to credit and debit cards. Venmo is currently supported only in the United States, so the rollout is (logically) limited to Amazon’s U.S. properties.

Competition between mobile wallets is heating up, so this is a very exciting space to follow. Affirm (NASDAQ: AFRM 0.00%↑) partnered with Amazon last year offering a pay-over-time solution at checkout. This year the companies expanded their partnership to Canada. Block (NYSE: SQ 0.00%↑) is investing heavily in integrating its Cash App and Square ecosystems by enabling "Cash App Pay" for Square's online and offline merchants. Last month the company also announced taking Cash App Pay beyond Square’s network. And finally, there is also Shop Pay, a mobile wallet from the commerce giant Shopify (NYSE: SHOP 0.00%↑).

Image source: Pay with Venmo

✔️ Amazon to Add Venmo as Payment Option Ahead of Holiday Season
✔️ Amazon Rolls Out Venmo Payments Ahead of Holiday Shopping Surge
✔️ Amazon to let customers pay with Venmo at checkout
✔️ PayPal shares rise after Amazon adds Venmo as checkout option
✔️ Affirm and Amazon Introduce Pay-Over-Time Option to Customers in Canada

VISA and Mastercard Earnings Benefit from Strong Consumer Spending

VISA (NYSE: V 0.00%↑) and Mastercard (NYSE: MA 0.00%↑) reported their quarterly earnings this week, posting better-than-expected results on strong consumer spending and recovery in cross-border travel. Thus, VISA posted a 5.2% YoY growth in total payment volume (10.5% excluding currency exchange impact) and a 41% YoY growth in cross-border spending (38% excluding currency exchange impact). Mastercard reported a 7.9% YoY growth in total payment volume (15.3% excluding currency exchange impact) and a 29% YoY growth in cross-border spending (44% excluding currency exchange impact).

A closer look at the reported numbers reveals that in the United States the growth in payment volume came from inflation and higher credit card spending. For instance, in the case of VISA, the U.S. debit card volume grew by 7.1% YoY, and the U.S. credit card volume grew by 16.7% YoY. As a reminder, inflation stayed above 8% during Q3 2022, so we can attribute debit card volume growth purely to higher prices. As per credit cards…The Wall Street Journal reported that credit-card debt returned to its pre-pandemic level of $916 billion. So life is back to normal and people are traveling and borrowing, as they did before COVID-19.

Learn more about VISA and Mastercard Q3 2022 results ↓↓↓
💡 “Notes on VISA FY Q4 2022 results: U.S. credit card holders drive payments volume up”
💡 “Notes on Mastercard Q3 2022 results: strong dollar conceals international growth”

Image source: Mastercard

✔️ Visa’s Spending Growth Slows as Consumers Hit by Inflation
✔️ Visa profit beats as payment volumes surge on travel demand
✔️ Visa’s Earnings Got a Boost From a Busy Travel Season
✔️ Mastercard's dim forecast clouds profit beat on travel demand
✔️ Mastercard Spending Growth Slows as Firm Watches Inflation
✔️ Mastercard’s Earnings Get a Lift From Travel, Consumer Spending
✔️ Credit-Card Debt Returns to Levels Before Covid-19 Pandemic

In Other News

✔️ Brazil Holds Interest Rate at 13.75% Before Presidential Runoff Vote
✔️ Payments Giant Adyen Starts Offering Banking Services, Going Head To Head With Stripe, Square And PayPal
✔️ Robinhood and Coinbase Will Battle Over Crypto. Traders Are Set to Win
✔️ Robinhood's Crypto Customers Can Now Trade Aave and Tezos
✔️ MakerDAO Community Approves Proposal to Place USDC in Coinbase's Custody
✔️ Cathie Wood’s ARK Fintech Innovation ETF Buys More Coinbase
✔️ Wall Street Is Glum About Coinbase Earnings as Crypto Market Slows
✔️ Goldman’s Marcus Hikes High-Yield Interest Rate to Highest on Record
✔️ Upgrade offers top U.S. savings rate of 3.5% as competition for deposits heats up
✔️ Visa Files Trademark Applications for Crypto Wallets, NFTs and the Metaverse
✔️ Block Taps Former Argo Technology Chief Hothi for Bitcoin Mining
✔️ Fintech Marqeta pushes into banking for next growth phase
✔️ Blockchain.com Visa Card, Powered by Marqeta, Debuts with 50,000 Sign-Ups
✔️ Raiffeisen Centrobank Turns to Marqeta to Power New Digital Bank Offering
✔️ Honda Selects Upstart Auto Retail as a Digital Retailing Partner
✔️ Cross River issuing AmEx cards on behalf of Fintechs

Disclosure & Disclaimer: despite rocky performance in 2021 and 2022, I own shares in most of the companies that I write about in this newsletter, as I am extremely bullish on the transformation in the financial services industry. However, none of the above is financial advice, and you should do your own research.