Square (SQ) Vs Futu Holdings (FUTU): Which Fintech Stock Is The Better Buy?
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Two Top Fintech Stocks To Watch In The Increasingly Digitized World
Fintech stocks have been in the limelight in the past year, boosted by pandemic tailwinds. Be it e-commerce, cashless payments, or stock market trading, companies focusing on these services have become increasingly popular over the past year. Fintech companies continue to extend their presence into our daily lives. Therefore, it is no surprise that investors continue to seek the best fintech stocks to buy in the stock market.
One broader positive trend for fintech companies has been the shift toward the usage of cashless payments. This is precisely why Square (NYSE: SQ) has been one of the favorite fintech stocks in the stock market today. Some would say that it can compete with major banks in the future. And I don’t disagree with them.
Another tailwind created by the pandemic is the rise of online brokerage companies. A volatile stock market, stay-at-home measures and some free time have many retail investors cashing in on the market. Naturally, this has amplified trading activities and has added up to a trading boom for online brokers. Futu Holdings (NASDAQ: FUTU) may not be as well-known as Robinhood, but its growth potential and total addressable markets are what make it a compelling investment. While both seem like good candidates to hunt for growth, investors are also cautious with their valuations amid the recent weaknesses among tech stocks. After all, these two are some of the top fintech stocks to buy in the market. However, if you are not afraid of getting your hands on growth stocks today, which would be a better buy?
Digital wallets aren’t new and have been growing exponentially in recent years. If you’re looking for a company to disrupt the financial services majorly, look no further than Square. Sure, with Coinbase’s (NASDAQ: COIN) recent public debut, investors are also contemplating whether to invest in cryptocurrencies. Now, I can’t say for sure cryptocurrencies are going to be the future of finance. But the practical challenges of achieving mass adoption could mean it is a time-consuming process.
Conservatively, we may be better off focusing on how we can improve our payment and banking systems, at least for now. Not to mention Square’s Cash App continues to bring big rewards to its shareholders. With more millennials adopting digital wallets at an unprecedented pace, there is a huge growth runway for the company.
From the company’s fourth-quarter financial results, Square reported a quarterly gross profit of $804 million, up by 52% year-over-year. The company’s Cash App delivered strong growth, with a gross profit of $377 million. That represented a staggering 162% year-over-year increase.
SQ Stock’s New Feature Could Be Very Disruptive To The Financial Industry
This week, Square announced that it has extended its automated clearing house (ACH) transfers to its invoices. For those unfamiliar, ACH is a U.S. financial network used for electronic payments and money transfers. One major reason to process an ACH transfer rather than a credit card payment or wire transfer is cost savings.
The addition of ACH transfers on invoices will allow Square’s customers to reduce fees even further. If you’re a business that accepts recurring payments, the savings can add up over time. Therefore, Square’s new feature could lead to huge savings for merchants in comparison with credit card companies like Visa (NYSE: V) and Mastercard (NYSE: MA). To add, these credit card companies also rely on companies like Square to accept their payments. Now, with Square offering a lower-cost payment method to businesses and having a strong payment method like Cash App under their belt, it is no small threat to the big banks. That is especially considering Square’s growing ecosystem in the market today.
Futu Holdings (FUTU)
Futu is an online brokerage and wealth management platform that primarily operates in China. Since it went public on Nasdaq in March 2019 at $12 a share, the company has traded to as high as $204. That’s before the recent pull-back along with the broader market.
As one of the best-performing stocks over the past year, it is not surprising why investors continue to bid the Robinhood of China higher as of late. For starters, the company was founded in 2011. It provides online brokerage services in Hong Kong, Mainland China, and the U.S. Futu primarily generates revenue through fees and margin financing.
More impressively, the company has strong backing from notable shareholders like Tencent (OTCMKTS: TCEHY), Matrix Holdings, and Sequoia Capital. With the backing of a company like Tencent, coupled with the trending tailwinds, the potential for Futu to cement itself as a leader in China’s mobile and online brokerage is bright indeed.
Just yesterday, Futu announced the commencement of the offering of 9,500,000 American depositary shares of 9.5 million ADSs. The company plans to use the net proceeds mainly for its margin financing business, international expansion, new license applications and other general corporate purposes.
From the company’s most recent quarterly performance, revenue came in 212% higher year-over-year to $427 million. Its earnings per share were even more impressive. It blew up 880% to $0.49, easily beating expectations by $0.08. Despite the impressive earnings beat, FUTU stock has been finding it difficult to maintain a strong bullish momentum. That’s considering that the broader market continues to exhibit weaknesses.
Now, that may cause some investors to shy away from growth stocks like Futu. But some are scooping up the stock as it continues to dip. With millennials going to play a bigger role in the investment landscape for the foreseeable future, will buying FUTU stock on its recent weakness be a great idea?
By and large, both Square and Futu are respectable players in their respective fields. Square has witnessed strong revenue growth and its Cash App could ensure the company’s growth in the foreseeable future. Over the long term, the introduction of new features on Square could mean that it is replacing at least some of the roles of traditional financial institutions. Its history of innovation could suggest that the best days of SQ stock are still ahead.
On the flip side, Futu stock could be your best bet on tapping on the rapid growth of China’s wealth and more nascent state of its retail investing industry. After all, the rise of retail investors is pretty much a global phenomenon. Considering Futu’s robust financials and the growth of the markets it operates in, we could be looking at a long growth runway indeed. Could FUTU stock be a multibagger in the making?