PayPal just reported excellent numbers, but the stock is barely moving.
SoFi reported a blowout first quarter, but the stock is still much lower than it was earlier this year.
Both could be excellent long-term investments that could turn $1,000 into much more.
There is a great deal of uncertainty surrounding tariff policy, interest rates, consumer confidence, and just the economy in general. And this has created some excellent opportunities for patient long-term investors to add fantastic businesses to their portfolio at attractive prices.
Two that could be worth a closer look right now are fintech leaders PayPal(NASDAQ: PYPL) and SoFi Technologies(NASDAQ: SOFI). Both companies just reported excellent earnings, and their stocks are still trading for a big discount to recent highs.
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PayPal's turnaround is in progress
After the COVID-19 pandemic came to an end, PayPal's growth abruptly did the same. To revitalize the long-term strategy, the company hired all-new leadership, including CEO Alex Chriss. The team has been hard at work on growth initiatives, including building an advertising platform that leverages PayPal's massive collection of data, launching a best-in-class debit card product, and several cryptocurrency improvements.
To be sure, not all of the efforts are reflected in the numbers. For example, the ad platform will take some time to ramp up. However, the company's first quarter results clearly show signs of progress.
For starters, a year ago, PayPal reported a year-over-year decline in active users. In the first quarter, the company announced an increase of 9 million active users over the past year. Total payment volume grew by 4% despite a challenging consumer spending environment, and thanks to a focus on efficiency, PayPal's adjusted EPS grew by an impressive 23%.
Some of management's initiatives are certainly showing results. For example, Venmo monetization is a big priority of management, and the payment app's revenue growth accelerated to 20% in the quarter. Debit card payment volume grew by more than 60%, as the recent product launch appears to have been a success.
In its recent investor day, PayPal said that it aims to achieve sustainable 20%-plus annualized earnings growth in the long run. With the business already generating more than $6 billion in free cash flow annually, and a valuation of just 13 times forward earnings, PayPal could be a steal for patient investors at these levels.
A record quarter for this banking disruptor
There's too much to like about SoFi's first quarter numbers to discuss in a few paragraphs, but I'll go through some of the highlights. I'll start by saying that SoFi is one of the few major companies that actually increased its full-year earnings and revenue guidance in its first quarter report, despite the surge in economic uncertainty we've seen over the past month or so.
In the first quarter, SoFi grew its revenue by 33% year over year, an acceleration over the prior growth rate. Adjusted EBITDA, EPS, and net income were all-time highs for the banking disruptor. Plus, SoFi added more than 800,000 new members, the highest ever in a single quarter, and the $7.2 billion in loans originated on the platform was also a record for the company.
And despite the increasing economic uncertainty, SoFi's credit quality improved, with delinquency and net charge-off rates both declining during the quarter. The company has done a fantastic job of building out capital-light revenue sources such as its third-party loan origination platform, and noninterest income (fee income) in the financial services segment quadrupled year-over-year.
Even with these stellar results, SoFi trades for more than 25% below its 52-week high. With fantastic (and accelerating) growth in all the right ways, now could be a smart time to take a closer look.
Expect some turbulence
To be clear, I own both stocks and are quite confident that I'll be glad I do in several years. I have no idea what they'll do for the next few weeks or months, and they could be rather volatile depending on how things like the trade war and GDP growth go. So, if you buy one or both stocks, be willing to endure a bumpy ride in the near term.
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Matt Frankel has positions in PayPal and SoFi Technologies. The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short June 2025 $77.50 calls on PayPal. The Motley Fool has a disclosure policy.
