As a digital payments platform, few entities can rival PayPal (NASDAQ:PYPL). In its last earnings report for the third quarter, the company produced a total payment volume of $178.67 billion. That figure was an increase of 25% from the year-ago quarter and beat out the consensus estimate of $177.32 billion. Unsurprisingly, this result bolstered PayPal stock, which up until then was facing investor skepticism.
Better yet, shares are still enjoying technical momentum. Since this month’s opening price, PayPal stock is up over 5%. However, some potentially unpleasant news threatens to undermine the company. In recent years, PayPal has looked beyond its payments business for additional revenue opportunities. Specifically, their foray into the e-commerce space has attracted the eye of sector giant Amazon (NASDAQ:AMZN).
According to Business Insider contributor Daniel Keyes, Amazon recently warned its customers about security risks with Honey, a browser extension that seeks out and implements discounts on various consumer products. The problem for PayPal? Earlier this month, PayPal shelled out $4 billion to acquire Honey Science Corporation, the namesake browser extension’s creator.
Although Amazon may have legitimate concerns about Honey, it’s hard not to overlook the inherent conflict of interest. Ordinarily, you’d expect this action to hurt PayPal stock. So far, though, shares have continued to move higher. Beyond that, we have little evidence to indicate that the markets care.
Now, it’s too early to make a definitive statement. However, investors probably view this headwind as a blip on the radar. For them, the more pivotal issue is what Honey can do for PayPal once the controversy subsides. Essentially, it gives them competent exposure to e-commerce that threatens Amazon’s dominance.
And yes, this is a concern for the e-commerce stalwart.
PayPal Stock to Benefit from Astonishing Popularity
In my last write-up for PayPal, I showed two charts that indicated that its shares represented a no-brainer opportunity. Considering that they’ve gone up 7% since the date of publication, I believe the fundamental case remains intact.
One of the metrics that really caught my attention that time was the company’s TPV. As I mentioned up top, at nearly $179 billion, this was a robust year-over-year lift of 25%. More importantly, you simply don’t see this kind of growth for an organization that has already expanded substantially; basically, the law of large numbers makes it increasingly difficult for companies to continue growing at strong, double-digit rates.
However, TPV isn’t the only metric that is witnessing tremendous growth. In Q3 2019, PayPal’s active user base hit 295 million, up a blistering 16% from the year-ago quarter. And such outperformance is no fluke. In the prior Q2 2019 earnings report, PayPal reported 286 million active users or a 17.2% YOY lift. Shockingly, that’s the biggest growth rate in active users since at least Q1 2011.
Interestingly, in the period from Q1 2015 through Q4 2016, active user growth averaged only 10.9%. This deflation made sense as growth usually declines as the target metric increases nominally. With more difficult prior-year comparisons, you wouldn’t expect PayPal or any company to continue expanding as if they were a startup.
But that’s exactly what PayPal is doing. From Q1 2017 onward, the average growth rate in active users jumped to 15.3%. Essentially, as more people become attuned to the conveniences of digital payment platforms, they’re jumping on the PayPal bandwagon.
And with such rapidly rising popularity and engagement, Amazon finally has a legitimate contender; hence, the warnings against Honey.
Still a No-Brainer
The case for PayPal stock couldn’t be any simpler. Unlike every other organization, the payments specialist is expanding like a startup, despite having a market capitalization over $135 billion.
That is clear evidence that PayPal’s product evangelism efforts have gained tremendous traction. And because of this better-than-expected development, Amazon is right to worry about PayPal. Presently, as Keyes notes, Amazon dominates the product search process. But with PayPal’s strong user engagement combined with Honey’s e-commerce related functions, PayPal can start chipping away at Amazon’s moat.
Plus, Honey offers a treasure trove of consumer data. A major part of Amazon’s success story comes from advantaging – some might say exploiting – such data. Right now, Amazon virtually has an exclusive hold to this information here in the U.S. However, PayPal is closing in, potentially being in the position to disrupt the disrupter.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.