Should You Buy This Micro-Cap Fintech Stock After Earnings?

Mogo Finance Technology Inc. (TSX:MOGO)(NASDAQ) released its first-quarter results this month. It and other fintech companies are looking to expand offerings as banks catch up in the online and mobile sphere.

| More on:
Piggy bank next to a financial report

Image source: Getty Images.

Financial technology stocks attracted a great deal of interest in the years following the 2007-2008 financial crisis. Trust in large financial institutions was low, and investors were excited about the possibility of low fee and high-tech alternatives coming out to challenge banks.

Many fintech companies have made inroads over the past decade, but the Big Banks have used a large war chest to minimize the advantage many fintech firms have in attracting customers that do their banking primarily online.

Several fintech firms dipped into cryptocurrency in recent years. Back in March I discussed how GoldMoney (TSX:XAU), a fintech company that operates a gold based financial services platform, had elected to abandon bitcoin and crypto trading. Interestingly, bitcoin has gathered huge momentum in the late winter and early spring.

GoldMoney is a more specialized fintech company, catering specifically to clients focused on precious metals. Today we’ll look at another exciting fintech company that released its first-quarter results earlier this month.

Mogo Finance (TSX:MOGO)(NASDAQ:MOGO) is a Vancouver-based fintech company that launched its IPO in 2015. Earlier this month, I discussed Mogo’s stock ahead of its first-quarter earnings release. At the time I called Mogo a pricey addition after it surged to 52-week highs following the announcement that it would acquire Difference Capital. Mogo stock is down 17% from its 52-week high as of close on May 17.

The company has undergone an evolution in the latter part of this decade. It began offering mortgages in the beginning of 2017 to expand its lending portfolio. Lending now represents 50% of Mogo’s revenue. In the first quarter, Mogo announced that it would offer a cashback feature on its MogoCard.

Core revenue increased 57% year over year to $16.4 million at the end of the first quarter. Subscription and services revenue rose 68% to $8.3 million. Gross profit jumped 14% to $10.7 million and adjusted EBITDA hit a record $2.2 million, representing a 639% jump from the prior year. Active members at Mogo climbed 34% year-over-year to 808,000, which equals more members than the largest Canadian credit union.

The big news for Mogo was its mid-April acquisition of Difference Capital. While there was speculation that Mogo would need to pursue financing, this move gives its balance sheet a boost in the near term. The transaction itself has very little dilution, with an issuance of 3.2 million shares. Mogo has said that the deal will provide the company with approximately $9-$10 million in cash and give it access to Difference Capital’s investment portfolio. It will give Mogo access to private technology companies like Hootsuite Media and Vision Critical Communications.

Mogo and other fintech companies are pushing to make up ground in other areas, as banks have invested huge sums to improve their online platforms. This company aims to leverage a tricky economic environment in which consumers are under increasing pressure. Some of its offerings include a free credit check to clients, MogoCrypto, and MogoProtect, a digital solution that aims to help consumers protect against identity fraud.

Mogo stock fell 2.7% on May 17, and shares have exhaled after a big run-up in late April. Mogo stock has nice upside as the company continues to add members at an encouraging clip. It’s worth adding on the dip for the long-term after retreating from 52-week highs.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

More on Investing

Young woman sat at laptop by a window

SPY Stock Is Just the Tip of the Iceberg for Canadians Investing in the U.S.

These two BMO ETFs are great alternatives to just buying SPY.

Read more »

TFSA and coins
Stocks for Beginners

How a BIG New TFSA Change Could Affect You in 2024

Canadians are in for a BIG surprise for the TFSA in 2024. Here's how TFSA changes could help you keep…

Read more »

Growing plant shoots on coins
Dividend Stocks

2 Under-the-Radar Dividend Payers With Solid Growth Prospects in 2024

These under the radar monthly dividend payers could provide good growth prospects in 2024 and beyond.

Read more »

Bank Stocks

3 Reasons I’m Buying Royal Bank Stock Today

Royal Bank (TSX:RY) stock has shown signs of strength and yet still put aside $720 million in provisions for loan…

Read more »

Business success with growing, rising charts and businessman in background
Tech Stocks

Growth Stocks: A Once-in-a-Lifetime Opportunity to Get Rich

Here's why investing in quality growth stocks such as Docebo and Datadog may allow you to generate sizeable returns.

Read more »

Question marks in a pile
Dividend Stocks

Should You Buy BMO Stock for its 5.2% Dividend Yield?

BMO stock has outpaced the broader markets in the past two decades. But is this blue-chip TSX bank stock a…

Read more »

Mature financial advisor showing report to young couple for their investment
Bank Stocks

3 Top Financial Stocks to Buy on the TSX Today

The top financial stocks to buy on the TSX today are two small lenders and one Big Bank.

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Canopy Growth Corp: Will it Ever Be a Buy?

Canopy Growth Corp (TSX:WEED) keeps going lower. Will it ever find a bottom?

Read more »