PayPal (NASDAQ:PYPL) entered 2020 in a strong position. Already the most popular online payment solution, the company was beginning another push toward in-store payment, and its Venmo digital wallet app was seeing a big increase in adoption.
Then the novel coronavirus pandemic hit. Stores shut down and online shopping surged in popularity. No-one wanted to handle cash. These trends were nothing but good news for PayPal, which had popular and proven solutions ready to go. Given the circumstances, it’s hardly surprising that PayPal stock has posted growth of 99% so far this year.
Now we have coronavirus vaccines on their way to us. That’s good news for everyone. But is the prospect of the pandemic finally ending going to spell trouble for PayPal stock?
A Killer Third Quarter For PayPal Stock
At the start of November, PayPal continued its 2020 streak by beating estimates and delivering record third quarter earnings.
This included a record-setting $247 billion in total payment volume, 4 billion payment transactions processed and revenue of $5.46 billion (up 25% year-over-year). Adjusted earnings of $1.07 per share blew past estimates of 94 cents. In addition, PayPal added 15.2 million net new active accounts in the quarter, plus more than 1.5 million new merchant accounts. These new accounts have an important role to play in the company’s post-pandemic story.
The Holiday Quarter Is Going To Be Even Better
Q3 was exceptional for PYPL. And Q4 is going to be even better. Early indicators such as data for Black Friday and Cyber Monday sales volume point to record-setting online shopping. That means the prospects are good for another record-setting quarter for PayPal.
Will Good Times For PYPL Outlast The Pandemic?
The question that keeps PYPL investors up at night is whether the effects of the pandemic will last. Now that we have vaccines for the coronavirus, will everything revert to pre-pandemic days? That scenario wouldn’t exactly be a disaster for PayPal stock — it posted quite respectable growth in the 30% range last year — but it would undoubtedly spook some.
However, all signs point to the pandemic having a lasting effect that will benefit all aspects of PayPal’s business.
Going cashless was already a growing trend because of convenience, but the coronavirus served to call attention to the germs involved in handling cash. And that distaste for cash is going to last. Paypal’s CEO told CNBC that the surge in demand for contactless payment in 2020 is pushing digital payment from “being a nice-to-have capability to a must-have essential service.”
Online shopping is another segment that has driven PayPal’s incredible performance in 2020. While no-one is predicting the pandemic has spelled the end of in-store shopping, it has had the effect of accelerating consumers choosing to shop from home instead of venturing out.
Rajiv Lal, Stanley Roth Sr. Professor of Retailing at Harvard Business School, says:
“Consumer behavior is moving to accept online shopping at an increasing pace. I think online retailers are doing a lot of things that will overcome consumer inhibitions.”
In other words, the pandemic only accelerated trends that were already in motion. Cashless, contactless payment and online shopping gained new converts because of the pandemic. Remember the 15.2 million new user accounts PayPal added in Q3? These people may not continue using PayPal’s services to the same extent they have over the past 10 months, but they’re also not going to stop using them once the pandemic is in the rearview mirror.
Bottom Line on PayPal Stock
PayPal stock has an “A” rating in Portfolio Grader. It certainly posted impressive growth in 2020, but just as importantly, PYPL was already on a growth trajectory.
Investing in PayPal stock now means buying in at an all-time high. That’s always risky. However, you can expect a pop when holiday quarter and full-year financials are reported.
Add in the big increases in new users the company has been signing up all year and this is a stock that is primed to continue delivering long-term growth.
On the date of publication, Louis Navellier had a long position in PYPL. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.