Due to increasing competition and the gyrations of the cryptocurrency market, some fintech equities are encountering headwinds this year.
Conversely, there is good news and it comes in the form of still-strong customer engagement with fintech mobile applications and other offerings. That could support long-term upside for exchange traded funds such as the ARK Fintech Innovation ETF (ARKF ).
A recent Deutsche Bank survey of 1,708 users of fintech mobile apps cites ongoing strength, particularly among Cash App and Apple Pay. That’s relevant to ARKF investors because Cash App’s parent company is Block (SQ), which is ARKF’s third-largest holding.
“While PayPal continues to be the dominant mobile payment service with 71% of respondents having used the service in the past 12 months, Cash App and Apple Pay both saw large increases in adoption over the past year reaching 46% and 31% adoption, respectively, up from 31% and 23%, respectively, last year,” wrote Deutsche analyst Bryan Keane.
PayPal (PYPL) is the company behind the popular Venmo app, which is Cash App’s most direct competitor. Currently, Venmo enjoys larger market share, but Cash App is making inroads and data indicates the Block offering can continue gaining market share from rivals.
“Within our coverage, we believe SQ’s Cash App had the strongest metric improvement since our last survey and continues to be well positioned to connect its merchant and consumer ecosystems especially as it deepens its roll out of Cash App Pay in the months ahead,” added Keane.
Another catalyst for select ARKF member firms, including Block, is the evolution of the still young buy-now-pay-later (BNPL) market. Data confirm more consumers are embracing that way of shopping, opting to get the goods they want today while stretching full payment out over multiple installments.
“Further, BNPL has shown a strong uptick in adoption with 22% of respondents having used a BNPL app over the past year (vs 11% last year) and although we will continue to monitor default risks in the space, the number of respondents expecting to miss a BNPL payment over the next 12 months fell to 28% this year from 33% last year,” concluded Keane.
Away from financial services, DraftKings (DKNG) could be another driver of ARKF upside. The online sportsbook, which is higher by 88% year-to-date, is the ETF’s fourth-largest holding. While the stock is clearly hot to start 2023, some analysts see more tailwinds at play.
“We calculate DKNG’s Q1 revenue slightly outpaced the US market at +11% quarter-over-quarter on market share gains, helped by strength in new states (Ohio and Massachusetts),” wrote Bank of America’s Shaun Kelley in a Monday report. “However, our net gaming revenue (NGR) estimate is down 15% quarter-over-quarter due to promotions new state launches and daily fantasy sports (DFS) seasonality. We believe higher hold, improving product mix, and shorter payback periods for new customers are all tailwinds for DKNG.”
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