Most stocks are struggling to claw their way back from the damage caused by the novel coronavirus. When investors panicked in March, the markets suffered record losses. Paypal Holdings (NASDAQ:PYPL) stock was lumped in with the rest.
Paypal lost nearly a third of its value in four weeks, but that’s where the similarities end. Paypal didn’t just move toward recovery. Its stock exploded into growth territory.
At this point, PYPL has left its pre-crash levels in the dust.
Paypal stock is now up 39% in 2020. It has already matched its 2019 performance, a 31% gain, despite being less than halfway through the year and the chaos caused by the coronavirus.
Benefiting From the Coronavirus Pandemic
The key to the rapid recovery and growth in PYPL stock this year is directly related to the coronavirus pandemic. While most companies have seen their business take a big hit during the lockdown, very few have actually benefited.
The example most people think of is Zoom Video Communications (NASDAQ:ZM). With employees increasingly working from home, the popularity of video conferencing software went through the roof. Zoom was easy to use and offered a fee tier. It became the go-to solution.
Zoom stumbled a few times because of security concerns, but Zoom stock — which ended 2019 just about where it started after its IPO earlier that year — posted triple-digit growth so far in 2020.
Paypal is in a similar situation, in that the coronavirus pandemic and lockdown happen to play into its business model. Online shopping. Contactless payment. Transferring money electronically to friends and family in order to avoid touching cash.
This is exactly what Paypal and its Venmo mobile payment solution are designed for. The Internal Revenue Service even allowed recipients to receive their $1,200 stimulus check through a mobile payment app, including Venmo.
Paypal CEO Daniel Schulman told Fortune that not only had his company seen a “tremendous surge,” in business, but he saw it as something that will outlast the pandemic. “We’re not going to go backwards to what was. We’re not going to be using cash nearly as much,” said Shulman.
Harvard economics professor Kenneth Rogoff agrees. He told Politico the crisis is “absolutely going to drive people to prefer credit and debit to cash.”
It’s Not Just Paypal
Of course, Paypal isn’t the only company that’s benefiting from the rapid shift to online shopping and contactless payment. At the end of April, Mastercard Inc (NYSE:MA) reported a 40% increase in contactless payments. In April, Bloomberg reported that use of contactless payment systems including Apple’s (NASDAQ:AAPL) Apple Pay were skyrocketing.
What About a Recession?
The downside in being a company like Paypal is the potential hit to your business when the economy swings into a recession. With job losses not seen in generations, a recession is a virtual guarantee at this point. Depending on how deep the coronavirus damage is to the economy, odds are we’ll be facing a full-blown depression.
In both cases, consumers are likely to tighten their spending. And that will have a negative impact on Paypal. The questions are how bad will it be, and how long will it last?
The Bottom Line on Paypal Stock
There are few companies as well positioned as Paypal to benefit from the coronavirus pandemic’s upending of consumer shopping behavior. Paypal is an established payment option for many e-commerce websites. It can be used for contactless payment in many retail locations and is accepted by many popular food delivery services. Paypal’s Venmo is popular for transferring cash, and its digital wallet can even be used to receive a stimulus payment.
The “tremendous surge” in Paypal use has resulted in big gains for PYPL stock. The prospect of consumer spending slowing down is a risk worth noting, but it’s not spooking investment analysts. Of the 41 surveyed by The Wall Street Journal, Paypal is a consensus buy with 32 rating the stock a “buy” and three rating it “overweight.”
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.