In 2019, online payments giant PayPal (NASDAQ:PYPL) was one of investors’ favorite stocks. Over the past 12 months, PYPL stock is up about 31%. And today, it reached an all-time high of $143.
In general, winning stocks tend to keep performing well, and the outlook of PayPal stock will likely remain strong in 2020. However, the shares could soon exhibit increased volatility and a downward bias. Long-term investors, however, should regard any decline of the shares as a buying opportunity.
That’s because PayPal’s strong fundamentals and long-term catalysts leave its profits and shares well-positioned to increase.
PayPal Has Robust Fundamentals
Trading with a market cap of over $143.5 billion, PayPal dominates the person-to-person digital payments sphere. The Street was generally pleased with the company’s Q4 earnings which were reported in January.
Its revenue rose 17% YoY in Q4 to $4.96 billion, while the company’s earnings per share of 86 cents beat analysts’ average estimate of 83 cents.
PayPal’s total payment volume (TPV), the total dollar value of transactions processed on the platform, jumped 22% YoY. Its total active accounts have now reached 305 million.
Its operating margins, excluding some items, improved to 23.6%, up from 21.6% in the same period a year earlier. PayPal’s operating income rose 34% YoY to $800 million.
The company provided 2020 EPS guidance of $3.39-$3.46 and 2020 revenue guidance of $20.8 billion-$21 billion. Analysts, on average, were expecting EPS of $3.49.
PayPal’s success has so far depended on innovation and acquisitions. It has been able to acquire companies thanks to its strong balance sheet and cash flow. For example, in late November, PayPal announced it was buying shopping and rewards platform Honey Science Corporation for $4 billion.
The latter deal was the main cause of the company’s soft guidance for Q1 and full-year 2020. Management said that the company’s recent acquisitions would likely lower its 2020 EPS by 98 cents to $1.00, including a 30-cent tax charge.
Following the earnings report, investors initially bid PayPal stock down about 5%. However, since then, the Street has been more eager to buy the shares, pushing the stock price to an all-time high.
PayPal’s Long-Term Catalysts
As a first mover in the online payments sector, PayPal has successfully seized a sizable chunk of the market.
PayPal’s peer-to-peer payment app, Venmo,has been one of the company’s growth drivers. In Q4, Venmo’s TPV jumped 56% YoY to more than $29 billion. The business should continue to grow rapidly.
In late 2019, PayPal acquired a 70% stake of GoPay, a China-based provider of mobile payments which will be the first foreign-owned, online-only payments platform in the country. Despite potential competition from local Chinese companies, such as the Alipay payment app of Alibaba’s (NYSE: BABA) Ant Financial, China will likely become an important market for PYPL.
In other words, the company’s business is poised to expand impressively. In coming quarters, PayPal expects to add about 35 million new active accounts.
So Should Investors Buy PayPal Stock Now?
As competition in the financial tech sector continues to heat up, I expect PYPL stock to fare well not only in 2020, but also for many years afterwards.
Although the company’s acquisitions will weigh on its earnings in 2020, as CEO Schulman has recently said, its “growth investments are focused on [the] recent acquisitions, growing [the] infrastructure in China and other international markets, Venmo monetization, and [the] in-store point-of-sale initiatives.” All of those areas cumulatively give PayPal tremendous potential in the new decade.
However, for investors who pay attention to technical charts, I’d like to highlight that there might be some profit-taking in PayPal around the corner, especially if tech and financial stocks become volatile. As a result, PayPal stock may fall toward $110 or even $100 in the short-term.
Ultimately, investors should always base their decisions on their 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 proactive management will likely help the shares reach new highs.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
