PayPal Holding Inc (PYPL) Stock Is the Mobile Revolution’s Cheapest Play

Paypal Holdings Inc (NASDAQ:PYPL) got some good news to start off the New Year.

PayPal Holding Inc (PYPL) Stock Is the Mobile Revolution's Cheapest Play

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Analysts at Monness Crespi Hardt published an upbeat report, indicating: “We’ve wanted to turn positive on PayPal for a while.” The firm now has a $50 price target on PayPal stock, which means there is a potential 24% upside.

But this was not the only positive report. Goldman Sachs also put PayPal stock on its conviction list, along with other mega internet companies like Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) and, Inc. (NASDAQ:AMZN).

Why the bullishness? First of all, the holiday season was a clear example that consumers increasingly use their smartphones as wallets. According to research from Adobe Systems Incorporated (NASDAQ:ADBE), the sales came to a hefty $24 billion (from Nov. 1 to Dec. 20), representing 31% of all online retail sales. This is up from just 19% in 2014. By 2020, Business Intelligence predicts that mobile will come to 45% of the $632 billion total in e-commerce sales.

While mobile commerce is far from easy, this is a big-time opportunity for PayPal. The company has spent years developing intuitive mobile apps for streamlining the purchase process, utilizing features such as Touch ID from Apple Inc. (NASDAQ:AAPL) and Order Ahead. But PayPal stock has also been customer-focused by allowing various payment types like Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA).

What’s more, the company has leveraged its platform to provide comprehensive merchant services. In the latest quarter, the business reported a 34% jump in payments volume to $73 billion. Just some of the marquee customers include Uber, Airbnb and Pinterest.

Of course, a critical part of the strategy — which has certainly helped PayPal stock — is the savvy dealmaking. One example is the acquisition of Xoom, which allows people to easily send payments to 56 countries. It’s essentially a new-fangled version of The Western Union Company (NYSE:WU) and Moneygram International Inc (NASDAQ:MGI). Keep in mind that the market opportunity is a whopping $600 billion.

But for holders of PayPal stock, the most attractive gem is the wildly popular Venmo app, which has become a must-have for millennials. A key has been capitalizing social features (such as sharing purchases with friends) and integrations, like allowing Apple users to pay with Siri.

In the most recent quarter, Venmo processed $4.9 billion in transaction volume, up a sizzling 131% on a year-over-year basis. The run-rate is near $20 billion.

Bottom Line on PayPal Stock

Currently, there are 192 million active customer accounts, up about 19 million during the past 12 months. And growth is expected to continue. PYPL projects that the top-line will increase at 16% to 17% for the next three years.

Oh, and the company remains a high-margin operator. During Q3, PYPL posted $801 million in operating cash flows. In all, there is $6.4 billion in the bank.

Despite all this, PayPal stock has still been a bit of a laggard. For the past year, the return is about 12%.

But hey, this means investors have an opportunity to get an affordable play on the mobile revolution. Keep in mind that the forward price-to-earnings ratio is 23, which is reasonable for a growth company. And as noted in the Monness Crespi Hardt report: “the ability to deliver outsized growth versus peers off this large of a base, while trading at a discount, deserves constructive scrutiny.”


Tom Taulli runs the InvestorPlace blog IPO Playbook and is a registered investment adviser representative (you can visit his site to learn more about his financial planning services). He is also the author of various books on investing like All About Commodities, All About Short Selling and High-Profit IPO Strategies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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