Over the years, I’ve implored investors to use the KSS model – or “keep it simple” – when deciphering potential opportunities. And that’s why I’m a big fan of what I call “megatrends,” or long-term developments that will shape our economy for decades to come. I’m particularly interested in digital payments specialist PayPal (NASDAQ:PYPL), which incorporates three megatrends: technology, demographics, and consumer behaviors. Therefore, I see massive upside potential for PayPal stock.
Although the company is a well-known entity, in my view, it’s really only starting to pick up steam recently. For instance, active user growth has seen a remarkable uptick in 2019. In its latest fourth-quarter earnings report, PYPL disclosed 305 million active users, representing a 14.2% lift from Q4 2018’s results. Last year, the average annual quarter-over-quarter growth rate was over 16%.
To put this into perspective, the highest growth rate for active users the company has registered was back in 2013 at 16.6%. In other words, despite the law of large numbers making robust percentage gains more difficult, PYPL is getting the job done. That right there is reason enough to consider PayPal stock.
Additionally, the company’s total payment volume (TPV) skyrocketed to $199.4 billion in Q4 2019. For the full year, TPV amounted to $711.9 billion, averaging an annual quarter-over-quarter growth rate of 23.1%. That’s not far removed from the record TPV growth rate of 28.6% in 2017, proving that not even mathematical trends can slow down PayPal stock.
I don’t expect to see significant deceleration for a long time to come. Technology has made our lives much more convenient. Logically, it’s only fitting that it would impact our finances. Further, demographics will make PayPal’s dominance a near-certainty.
Millennials to Continue Catapulting PayPal Stock
Historically, traditional banking institutions have supported the backbone of financial transactions conducted by baby boomers and Generation X. But with millennials, a critical paradigm shift occurred.
According to a 2018 Gallup poll, millennials feature the lowest levels of customer engagement across several industries. Not surprising to those who have been observing demographic-based behaviors, this lack of engagement applies to the retail banking industry.
Frankly, why should they be engaged? In many ways, banks are several steps behind the present technological reality. We live in a world where we can order exactly what we want through e-commerce platforms like Amazon (NASDAQ:AMZN). Increasingly, we can also get it when we want as well, including Sundays.
However, that’s just not the case with banks. Physically, most banks have inconvenient schedules, particularly for young professionals working in the dynamic gig economy. They’re rarely open on Saturdays and never on Sundays and federal holidays.
As a generation that has come of age within the digitalization era, it’s no wonder that millennials exhibit radically different behaviors and expectations than prior generations. This is the pivotal reason why PayPal stock continues to defy market gravity. The company addresses their needs while stodgy, traditional institutions don’t even recognize the problem.
Furthermore, nearly half of millennials utilize mobile banking. One of the reasons why is that this platform better facilitates person-to-person money transfers. Based on the burgeoning growth of the gig economy, we can reasonably expect an upward trajectory in mobile banking, bolstering the case for PayPal stock.
Why am I so confident? Simply, PayPal offers an ecosystem that is geared toward the millennial lifestyle. For one thing, you can easily invoice clients via internal tools. Moreover, PayPal integrates seamlessly with mobile apps like Venmo.
China Leading the Way
If the demographic trends aren’t convincing enough for PayPal stock, just look abroad for where the payments specialist is heading. Specifically, China provides a blueprint for the future of financial transactions.
In the first 10 months of 2017, China processed an unbelievable $12.8 trillion through mobile payments. Put another way, Chinese merchants don’t want cash. Instead, they prefer the convenience and safety (relative to holding physical cash) of QR-based transactions through smartphones. And like PayPal or Square (NYSE:SQ), service providers offer their own ecosystem, conveniently recording every transaction for internal review and tax preparation.
On the other end of the spectrum, traditional banks can’t catch up because they’re tethered to an antiquated system. Comparatively, digital payments solutions have gone airborne, converting people internationally by the millions. Therefore, betting on PayPal stock isn’t so much about the issuing company specifically. Instead, you’re assuming that these broad digitalization trends will continue.
In my book, this is one of the smartest bets you can make.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.