Despite the broader market selloff in Q4, not all companies have suffered the wrath of investors. San Jose-based PayPal (NASDAQ:PYPL), the global online payments company, is one in a handful of tech stocks that investors have not penalized. As the fintech competition is heating up, this pioneering company in the digital payments sector still dominates the first-person payments sphere. With that said, let’s look at the reasons behind the success of PYPL stock to see if there is room for further growth in its bottom line and stock price.
PayPal Has Robust Earnings
When PayPal reported Q3 earnings in October, PYPL stock investors cheered the positive momentum and growth in revenue (up 13% in the U.S. and 15% overseas), transaction volume (up almost 10%) and the number of active accounts (15% growth). CEO Dan Schulman in part attributed the robust results to relentless innovation, made possible by the strong balance sheet and cash flow, and gave an upbeat expectation for the year-end results, too.
As a digital wallet, PayPal’s profitable business model depends on processing personal and merchant customer transactions on its global suite of payments platforms. For many of its services, it has a business or pro suite where PYPL charges the account holder an extra amount. It also receives short-term interest from money kept as PayPal balance in customer accounts. Therefore, to increase its user base in over 200 markets globally and thus its revenues, the company aims to integrate a plethora of payment systems.
PYPL’s Partnerships and Acquisitions
In 2013, when PayPal acquired Braintree, which specializes in payment systems for e-commerce ventures, it also became the owner of Venmo, a mobile payment app. Sending money electronically peer-to-peer with a few taps has taken off among U.S. consumers. In this market that is expected to grow by double-digits in the next few years, Venmo has almost 25 million users and is ahead of its closest competitors, i.e., Apple (NASDAQ:AAPL) Pay Cash, Square Inc’s (NYSE:SQ) Cash App, and Zelle, which is owned by Early Warning Services, a private fintech company.
In 2018, the sale of its costly credit portfolio to Synchrony enabled PayPal to generate about $7 billion for future acquisitions. Later in September and November respectively, it finalized the acquisition of iZettle, a Swedish mobile payments company, as well as of Hyperwallet, a global payout platform. The integration of iZettle gives PYPL a retail store presence in over ten markets in Europe as well as Latin America.
In addition to acquisitions, PayPal is building strong partnerships with other trusted brands. For example, it is collaborating with American Express (NYSE:AXP), Visa (NYSE:V) and Mastercard (NYSE:MA) whereby credit cardholders can use their “points” on the respective cards when they use PYPL to pay third-party merchants. In its efforts to reach out to U.S. residents without digital payment methods, the company has partnered with Walmart (NYSE:WMT) to build in-store ATMs so that PayPal customers can withdraw cash at Walmart stores across the country.
The Bottom Line on PYLP Stock
Year-to-date, PayPal stock is up 16%. For investors who pay attention to technical charts, there might be some profit-taking around the corner — especially if tech and financial stocks continue to be volatile well into the new year.
Ultimately, investors should always base their decisions on individual risk/return profiles. However, I expect PayPal to increase its presence on the web, in mobile app platforms, and in retail stores globally through organic growth, acquisitions and partnerships. Its profitable business model and pro-active management will help the PYPL stock price reach new highs.
Within two to three years, investors who buy PayPal stock are likely to be rewarded handsomely.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.