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As a wave of new digital payment solutions arises, investors want to know the fintech stocks that will deliver the greatest windfall over time.
Now, since a Stripe IPO could happen at any moment, Stripe stock sits atop most lists. But a big brand shouldn't be all you think about when choosing a stock to buy.
We'll tell you the real scoop when it comes to Stripe's role in the fintech industry. And we'll share a better fintech stock you can buy even before Stripe goes public.
It would not be a bad time for Stripe to enter the IPO market. The company took the spotlight in the last year as everyone and their dog tried to start an e-commerce brand. In fact, the pandemic boosted e-commerce sales by 44%.
Rising e-commerce sales are huge for Stripe, as its platform caters largely to small e-commerce companies taking automated monthly payments.
But again, Stripe is but one of many ways to approach fintech, meaning the competition is strong.
On one hand, you have other digital payment apps like PayPal (NYSE: PYPL), with enough capital to do everything Stripe does and more.
On the other, you have cryptocurrency, which could knock any fintech weaklings out of the game if they can't adapt.
Lucky for Stripe, it's been steady raising money over the years and may have the capital to thrive - which is why a Stripe IPO is likely for 2022.
But that won't be without a fight. The fintech market is only getting denser.
Here's what you should know about Stripe - then we'll share a stock you can buy now that could be more worth your while.
What Is Stripe?
Stripe offers software as a service (SaaS) that mediates payments between companies and customers. You find your cousin using it to sell her homemade jewelry. Or your aunt using it for her drop-shipping business.
One of the defining features of Stripe is its versatility. It's convenient and efficient enough that businesses of all kinds adopt it. If anything, that's what will carry Stripe into the next generation of finance.
While digital payments were already on the rise, the pandemic accelerated the move there. People started ordering all manner of food and goods to their doorsteps. For that, they needed digital payments, which is why this San Francisco- and Dublin-based company had such a great year (and why IPO rumors have started to swirl).
The company's billing software was only released in 2018. And today, it's already nearly four times its 2019 value of $22 billion. The most recent $95 billion valuation makes Stripe the second-highest venture-backed company in the world, only after ByteDance, owner of TikTok.
E-commerce will only continue to grow, which should make a Stripe IPO an increasingly sensible course of action.
But before we talk about whether or not Stripe stock is a buy, let's dive a little deeper into this company's financials.
Is Stripe Profitable?
We won't have the full financial picture until Stripe is publicly traded. But there are a few things we can still learn from funding rounds and reports from the company.
We already mentioned how the pandemic boosted the company. Well, revenue was up as much as 70% in 2020, to around $7.4 billion, a good sign. Accelerating revenue means a company has a better chance of reaching profitability down the line (if it's not there already).
In addition to gaining customers, Stripe has had no trouble raising capital over the last few years. Peter Thiel and Elon Musk - co-founders of PayPal - have even been early investors in this company.
Their most recent fundraising round, in Spring of 2021, brought in $600 million.
Stripe has used its funds wisely, growing quickly around the world. In 2019, it added Denmark and Mexico among a total of 20 new countries.
Today, the services is available in nearly 50 countries worldwide.
Part of its growth has involved big acquisitions like Paystack, a Nigerian payments processor, for $200 million.
So, the company appears to be making all the right moves and growing fast. We're yet to see if this growth can be sustained, of course.
The good news is that you don't have to decide yet, since Stripe stock isn't public and news of an IPO hasn't been confirmed.
But there is one stock you can buy now that's in the same industry, around the same market cap, and could outperform every other fintech company out there...
No Need to Wait for the Stripe IPO
Money Morning's Alex Kagin sees Block Inc. (NYSE: SQ) as a major buy in this fintech sector. The company formerly known as "Square" has all the marks of a stable, fast-growing fintech. It has a hand in crypto and every other possible fintech innovation.
It's valued at a slightly higher market cap than Stripe.
Block is already a publicly traded fintech company, valued at a slightly lower market cap than Stripe, around $75 billion.
But many analysts believe it's deeply undervalued, giving it a high target of $360 over the next 12 months from today's $163. If they're right, that represents a gain of 120% for today's investor.
Another thing to consider is that Bitcoin (BTC) is on Block's balance sheet. It's made over $200 million in BTC purchases in the last year. While BTC is currently in a slump, the bulls expect it to bounce back strong in 2022, which would be great for Block's balance sheet.
Of course, the company doesn't rely on crypto alone. It has POS systems in several brick-and-mortar stores in addition to offering online SaaS similar to Stripe.
It does everything Stripe does, plus more.
So, as far as fintech companies go, Block should be your first choice. It's the most bang for your buck.
That said, if you want to get a bigger piece of this industry, Stripe is still a top contender for a piece of the pie. It wouldn't be a bad idea to buy shares if you already hold some Block stock.
But it's still not 100% certain that Stripe will go public in 2022.
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.