As stock performances go, PayPal’s (NASDAQ:PYPL) gains in 2019 were probably a disappointment for shareholders.
Normally, a 29% return on any stock, let alone one of the world’s leading payment processors, would be considered a success.
But 2019 wasn’t just any year. The S&P 500 delivered its second-best performance of the decade, up 28.9%. Furthermore, while PayPal stock gained almost 30%, it lagged the S&P 500 Data Processing & Outsourced Services Index by 15 percentage points.
In 2020, with expectations much lower for the S&P 500 and markets in general, if PYPL were to deliver a repeat performance, the stock price would close the year around $140.
Here are three things PayPal needs to do in the next 12 months to ensure PYPL stock hits $140.
Partnerships Have to Reap Rewards
In March 2019, as part of a $1.8 billion equity offering by Mercadolibre to expand and grow its e-commerce business, PayPal invested $750 million in the Argentinian company.
“Digital commerce in Latin America is experiencing tremendous growth and MercadoLibre is well-positioned for continued leadership,” Schulman said at the time. “We’ve been impressed with the digital commerce and payments ecosystem Marcos [Galperin, MELI CEO] and his team have built.”
However, that was just an investment.
2019’s end-of-the-year announcement expands the relationship to include PayPal as a payment option for online checkout via Mercado Pago in Brazil and Mexico. In addition, PayPal will be accepted in the MercadoLibre marketplace in Brazil and Mexico for cross-border purchases.
As a result, PayPal’s 300 million customers can now use the payment processor to buy stuff online in two of Latin America’s largest commercial markets.
I said in November that if you could afford to buy both PYPL and MELI, you should. Based off December’s announcement, I would double down on that sentiment.
In the year ahead, I want to see tangible progress from this partnership. If we do, PayPal’s valuation multiples could start to creep higher, a necessity if PYPL stock is to hit $140, let alone $200.
Additional Revenue Streams for PYPL
PayPal announced Jan. 6 that it had completed the $4 billion purchase of Honey, a Los Angeles-based digital shopping and rewards platform.
“The addition of Honey to our platform enables a significant step forward in our commitment to provide powerful services and tools for merchants and consumers, move beyond our core checkout proposition and significantly enhance the shopping experience for our 300 million consumers and merchants,” Schulman stated in a company release.
Whether we’re talking about PayPal, Square (NYSE:SQ), Shopify (NYSE:SHOP), or any of the other fintech companies participating in and around e-commerce, they all want to offer as many products or services to merchants and customers as they possibly can.
The Holy Grail of e-commerce is to become a one-stop shop for merchants and buyers alike. We’re not there quite yet, but moves like acquiring Honey bring PayPal that much closer.
Business Insider contributor Mike Jaconi said it best in a Jan. 7 opinion piece:
“When it comes to loyalty, every company, from multi-billion-dollar businesses like Amazon to your favorite mom-and-pop coffee shop, wants to do the same thing: Convince you to come to them first — and not their competitors — as frequently as possible.”
Honey’s entire business model is built on driving commerce. Now, not only can Honey influence what people buy, but it can also influence how they buy those products.
That’s huge. In 2020, I’ll be watching Honey’s overall effect on PayPal stock.
Continue to Monetize Venmo
One of the things Sanford Bernstein analyst Harshita Rawat would like to see from PayPal in 2020 is further monetization of Venmo, its peer-to-peer payment system.
Toward the end of 2019, reports surfaced that Venmo was losing users to Square’s Cash App, a sign that the stakes might be higher for PayPal in 2020. According to Macquarie analyst Dan Dolev, Cash App is doing well in Venmo strongholds such as New York, California and Massachusetts.
Up until now, Venmo’s owned the markets on both coasts, with Cash App ruling in the South and Midwest. However, with new features being introduced such as commission-free stock trading, Cash App is getting the attention of new user demographics, forcing Venmo to keep pace.
In the year ahead, I’m not so concerned with the monetization of Venmo as I am about user base losses. Square is catching up, and while I like both stocks, that ought to be a big concern for PYPL shareholders.
The Bottom Line on PayPal Stock
In 2019, Square stock was soundly beaten by PayPal. In 2020, I think the battle between the two payment processors is going to be a lot closer.
Who will win? I couldn’t tell you. Long-term, I like PYPL stock.
But if PayPal takes care of these three issues, I think it’s got a shot at hitting $140.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.