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2 FinTech companies with room to grow

We look at FinTech businesses looking to innovate and disrupt traditional finance methods, and what this means for investors.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

It's been a turbulent year so far for lots of reasons. Interest rate rises and fears of a global recession have weighed on markets. Companies whose valuations are heavily based on how much their earnings are expected to grow will feel the effects more than others.

When interest rates rise, the value of expected future earnings comes down. In that environment, like we've seen this year, high growth companies tend to suffer.

At the same time, fears of a downturn to the global economy means investors have moved away from these investments, adding pressure to companies that trade at higher prices.

This means lots of high growth companies have seen their valuations come down. But not all are created equal, and there are still opportunities for investors.

The financial technology (FinTech) space sits very much in the growth aisle. There's no hard and fast definition of a FinTech business, but they generally look to innovate and disrupt traditional finance methods using new technologies. We've looked at a couple below.

Investing in individual companies isn't right for everyone. It can be higher risk. If the company fails, you risk losing your whole investment. If you can't afford to lose your investment, investing in a single company might not be right for you. Make sure you understand the companies you're investing in and their specific risks. And make sure they're part of a diversified portfolio. Investments rise and fall in value, so you could get back less than you invest.

This article isn't personal advice. If you're unsure, please seek advice.


Shopify might have started out as a pure commerce play. But it's been making inroads into the payment and fintech space as it looks to expand the range of services it offers customers.

Mainly targeting small and medium-sized businesses, Shopify offers a one-stop shop to run a commerce business. Merchants can use the cloud-based service to build and customise an online store, while other services allow payments across a range of channels such as online to brick-and-mortar locations.

Once signed up, Shopify offers a host of upgrades and add-ons to help businesses customise and grow. These add-ons have become the main driver of revenue to the business.

And therein lies one of the group's key competitive advantages. Once you're entrenched in the system, it's very hard to get out. That's helped revenue grow by an annualised rate of 62% a year since 2017. The group captured over 10% of the US retail e-commerce sales last year, second only to Amazon.

Chart showing Shopify revenue ($m)

Source: Shopify Investor Overview Deck Q2 2022.

Positioned at the heart of the growing e-commerce revolution has held the group in good stead. But it's not all been plain sailing.

The group expanded the business over the last few years, gearing up for a big shift in spending away from in-store retail. To some extent that's happened, but it's not been to the scale Shopify had hoped.

Couple that with a changing global environment, that's put pressure on smaller businesses as the cost of capital rises and consumer spending comes under pressure, and the group's valuation has taken a tumble this year.

Missing earnings expectations over the last two quarters hasn't helped either, with the outlook on growth for the full year taking a hit along the way.

In response, the group cut 10% of its staff and plans to slow down new hiring. It's never good to hear staff cuts are needed, but decisive action taken now should help streamline operations later on.

Profits are under pressure this year, with the group expected to post an operating loss in the region of $160m for the full year. Though the balance sheet strength means the group has firepower to keep investing in growth despite a challenging period in the short term. Net cash on the balance sheet stands at around $6bn.

For investors willing to accept some short-term volatility, Shopify's sticky relationships with businesses and exposure to longer term trends are attractive. Especially considering the group trades on a price to sales ratio of 7.6, well below the longer-term average.

But there's no denying, that valuation still needs some stellar growth to come. The next year or two will be difficult as e-commerce trends shift back to more normal growth rates and consumers' spending comes under pressure.

See the latest Shopify SHARE PRICE AND HOW TO DEAL


Intuit's suite of products includes some names you might have heard of, like QuickBooks, TurboTax and Credit Karma. These services leverage technology and AI to help individuals and small businesses manage their finances and taxes.

Central to the case is Intuit's mission critical software and services - as the late Benjamin Franklin famously pointed out, taxes are one of life's certainties.

That means demand could remain sticky long into the future. Intuit has an impressive history of harnessing that to drive sales that have increased at an annual rate of 17% over the last 5 years. Revenue in the third quarter of 2022 grew 35%, with full year growth expected to be between 31-32%, that could be around $12.7bn.

Last year's acquisition of Mailchimp, costing around $12bn in total, was a sign that Intuit's keen to expand its addressable market. It's already having an impact, with around 6 percentage points of third quarter revenue growth coming from the newly acquired business.

Mailchimp's a digital marketing platform for small and medium-sized businesses and is expected to add more than $30bn to the group's addressable market, which stands at $300bn overall. Aside from a bigger market, there are genuine cross selling opportunities with QuickBooks so businesses can market their company and manage finances seamlessly.

The software-based model means profits are high quality leading to the group boasting an operating margin of more than 30% consistently over recent years. Profits seamlessly flow through to cash and analysts expect free cash flow of $3.9bn for the full year. If we compare that to expected cash profit (EBITDA) of $4.8bn, that's a cash conversion of over 80%.

Chart showing Intuit's operating profit margin

Source: Refinitiv Eikon 18.08.22 (2022 & 2023 figures based on analyst estimates)

Looking to the balance sheet, debt's increased due to the Mailchimp acquisition and net debt at last count stands at $3.3bn. That'll be a cash burden over the next few years if the group wants to bring it back down. That could put some pressure on the modest 0.6% prospective dividend, but more likely on returning excess cash via buybacks if cash flows falter. The group spent $1.3bn on share buybacks in the first three quarters of the year. Remember, no yields are guaranteed.

Given the positives, it's unsurprising Intuit's typically traded on high price-to-earnings ratios. At the end of last year it reached 60 times forecast earnings. That's put the business firmly in the firing line as interest rates have risen and investors have looked to more value-based investments in 2022.

As a result, the valuation has come down from the highs to sit at 34.6 times forecast earnings. That's still above the long run average and offers more potential than it has for a few years but requires consistently high growth to justify it.

See the latest Intuit share price and how to deal

Unless otherwise stated estimates are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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