7 Fintech and Tech Zombies to sell before 2023

After a tough year, there are plenty of technology stocks to sell. Unfortunately, investors now know that inflation is persistent. Almost all central banks around the world raised interest rates. Some fintech firms have already shown signs of strain. And most are simply not prepared for the monetary tightening that may persist. In addition, there is now a higher risk of loan default.

That said, investors need to get out of unproven fintech before share prices fall even more. Although they all lost more than half their value in 2022, their outlook is likely to worsen in 2023. Here’s our top list of tech stocks to sell now.

Tech Stocks to Sell: Affirm Holdings (AFRM)

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One of the best tech stocks to sell is Verify inventories (NASDAQ:AFRM), which lost over 90% of its value over the past year. Unfortunately, rising financing costs could damage the business model again in the coming year. Even worse, as the economy worsens, consumers will have weaker purchasing power, hurting Affirm’s transaction volumes.

AFRM stock traded above $160 per share in late 2021 as markets believed revenue growth would outpace costs. Now credit card debt will limit consumer purchases. Investors are also far more cautious about Affirm’s prospects. In its first fiscal quarter, Affirm posted a loss of 86 cents GAAP per share. Revenue increased 34.2% year over year to $361.62 million. Gross margin is below the fintech average, as cash spend increased to $220 million.

Tech Stocks to Sell: Ally Financial (ALLY)

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Ally Financial (SNEEZE:ALLY) is damaged by exposure to Carvana’s (SNEEZE:CVNA) car loan business. In fact, when Carvana’s consumers fail to meet their debt obligations, you can expect Ally Financial to increase its assumptions. Unfortunately, when credit scores deteriorate, Ally must write off these losses.

ALLY stock lost almost half of its value in 2022. Markets are also troubled by Ally Financial’s exposure to the auto industry. In 2023, the company must maintain surplus capital to strengthen the balance sheet. This will limit the share buyback. Expect bears to pressure the stock as sales volumes pick up. Ally Financial reported $12.3 billion in consumer auto loans. Expect this to fall as auto demand falls in 2023.

Tech stocks to sell: block (SQ)

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Another of the best tech stocks to sell is Block (SNEEZE:SQ), which lost 62% of its value in 2022 and remains overvalued. In the third quarter, Block had non-GAAP EPS of 42 cents. Revenue rose 17.7% last year to $4.52 billion. Although the business is growing significantly, Block needs to invest a lot to develop products. In 2023, CFO Amrita Ahuja said the company plans to significantly reduce expenses. Block must spend less on marketing and product creation as the economy slows. The market will react negatively to the drop in income. This could put further pressure on the shares.

Block’s banking products face considerable pressure. CashApp, for example, is a central financial service. Traditional banks and credit card companies can offer better terms to merchants. This would threaten the monthly active users of the CashApp Card.

LendingClub (LC)

Source: LendingClub

LendingClub (SNEEZE:LC) had revenue of $304.9 million in the most recent quarter ended September 30, 2022. It increased its revenue and earnings thanks to recurring interest income and improved efficiency. Investors need to keep a close eye on LendingClub’s loan yields. Loan interest rates fell modestly. After interest rates rose rapidly, unsecured personal loans will fall while interest-earning assets rise. But as the company increases the mix towards lower risk, revenue growth will slow.

LendingClub will have a higher financing cost. It may be necessary to offer a higher return on its savings products. This will reduce earnings on interest. The credit card business will face more competition. Fortunately, credit costs are lower. But as credit card debt increases, investors may worry that loss provisions are also increasing.

The LC share lost over 60% of its value in 2022. The share is on a steady downward trend. Sellers reduced their positions after each major rally, a bearish signal. Expect the negative pattern to continue.

OneMain Holdings (OMF)

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OneMain Holdings (SNEEZE:OMF) acquired Trim, a financial wellness fintech in April 2021. Installment loans are the core business of the non-prime credit market. In the third quarter, OneMain posted revenue growth of 3.9% over last year to $1.07 billion. The firm wants to capitalize on competitors leaving the market. This creates less supply and allows OneMain to benefit from its strong balance sheet.

Investors are less confident. In the non-prime market, the delay may increase as the recession worsens in the coming year. The markets will avoid companies that have a lot of unsecured debt. To manage these risks, OneMain must increase its reserves. It already estimated lifetime gross losses for its overdue receivables.

OneMain’s Current Expected Credit Loss (or CECL) may rise as the macroeconomic landscape weakens. Investors need to prepare for updated adverse reserve models next time. This increases the risk of holding OMF shares. OMF shares lost nearly a third of their value in 2022. Despite trading at single-digit P/Es, shares still carry significant risk.

SoFi Technologies (SOFI)

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SoFi technologies (NASDAQ:SOPHIE) lost 71% of its value in 2022. SoFi investors hope that the stock will hold the $4.60 level. Unfortunately, bears are ahead with a profitable trade. The short interest rate is 13.6%. SoFi wants to impress shareholders with its high engagement figures through its financial services business. It has membership products whose admission risk increases as user activity increases. Fintech, however, must discontinue products that do not create value.

SoFi depended on expanding its customer base by offering valuable products. Customers who have low deposit balances will have limited lifetime profit margins. Still, the company added about $5 billion in total deposits in the third quarter.

Investors are not sure that SoFi’s low cost of financing the business is sustainable. For example, the company created SoFi Plus. This new membership provides new customers with a welcome offer, premium interest rates, rewards and discounts. This increases the cost of acquiring customers. It also damages interest income on deposits.

Upstart (UPST)

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Shares of Upstart (NASDAQ:ESTABLISHMENT) recently posted non-GAAP EPS of -$0.24. Revenue fell 31.0% year over year to $157.23 million. The firm issued a Q4/2022 revenue forecast in the range of $125 million to $145 million. This is nowhere near the consensus estimate of $185 million. Upstart has dislocations in the funding environment that will not resolve themselves. The weak economy will pressure Upstart’s marketplace structure. More lenders on the platform will close fewer deals amid the volatility.

Fund costs are rising while spreads continue their volatility. This uncertainty hurts Upstart’s deal closing rates. Furthermore, on-balance sheet loans continue to increase. Investors will become increasingly concerned as interest rates strain Upstart’s balance sheet. Markets dislike uncertainty. The poor results will get worse next quarter. Defaults will increase, hurting Upstart’s portfolio performance. The company must increase its annual percentage rate. This reduces the customer’s appeal for borrowing from Upstart.

As of the date of publication, Chris Lau did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publishing Guidelines.