Since the spin-off from eBay Inc (EBAY) back in late August, PayPal Holdings Inc (PYPL) has had a rocky ride. But then again, so has the general market. Yet now things are getting back on track, with PayPal stock up about 14% for the year.
However, the bull run may not necessarily be over. The fact is that PayPal is a dominant player in one of the hottest markets in the world — mobile payments. It’s something that is strategically important to just about any major financial institution.
Consider that an analyst for Nomura thinks that this could be a nice catalyst for PayPal stock. According to a recent report, there is a good chance that the company could team up with an operator like Visa Inc (V), MasterCard Inc (MA) and American Express Company (AXP). This could be either some type of strategic alliance or perhaps even an acquisition. Regardless, Nomura has bumped up the price target on PayPal stock from $46 to $54.
Such optimism should really be no surprise, either. In the latest quarter, PayPal added 6.6 million active users, for a total of 179 million, and processed a whopping $82 billion in transaction volume, up 29%.
And yes, PYPL has been able to translate this into strong financials. During Q4, the company posted a 17% increase in revenues to $2.6 billion, with juicy operating margins of 21%.
Why PayPal Stock Continues to Rise
A key to PayPal’s success is its continued innovation. For example, the company has gotten lots of traction with features like One Touch, which allows much easier online purchasing. In about 10 months of launch, the service has grown to 18 million consumers.
Some other interesting features include the ability to order ahead with local merchants (leveraging location-based technologies) and the use of a smartphone’s contacts to make it easier to transact with friends.
But of course, PYPL has been adept with its deal making. Take a look at the acquisition of Xoom, which has enabled the company to capitalize on the massive market for global remittances. The category has long been dominated by legacy operators like The Western Union Company (WU) and Moneygram International Inc (MGI).
But, perhaps the most significant deal for PayPal has been its acquisition of Braintree, which operates a global payments platform. Braintree handles processing for customers like Uber and Airbnb.
The deal also brought Venmo — a peer-to-peer payments service — with it. For the most part, it has become extremely popular with the millennial generation because of the social media features. In the latest quarter, Venmo processed $2.5 billion in transactions, up a sizzling 174%.
Oh, and PayPal is now starting to monetize this asset, which should be a nice catalyst for growth.
Bottom Line on PayPal Stock
Of course, PayPal stock is not without some notable risks. After all, the company must compete with a host of tough rivals, including Alphabet Inc (GOOG, GOOGL), Apple Inc. (AAPL), Square Inc (SQ), Facebook Inc (FB), Amazon.com, Inc. (AMZN) and even Starbucks Corporation (SBUX). But there is also the emerging competition from traditional financial firms like JPMorgan & Co. (JPM) and American Express. And yes, there are plenty of startups gunning for the opportunity, such as Stripe.
But PYPL has some major advantages.
First of all, the company has a trusted brand, which is critical for the payments industry. Furthermore, PayPal has a global infrastructure as well as a full-feature set of offerings for consumers and merchants. And finally, the company has the advantage of being completely focused on its core business.
In other words, for investors looking for a way to capitalize on the payments revolution, PayPal is certainly a pretty good choice. More importantly, there are several assets — like Xoom and Venmo — that could provide some nice growth catalysts over the coming years.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
