PayPal (NASDAQ:PYPL) was already rewarding investors by shifting into growth mode starting in 2017. PayPal stock closed out 2019 flirting with $110, putting together an impressive gain of 117% over the previous two years. That was nothing compared to 2020.
PayPal shares have hit a series of record highs through 2020. At this point, they are closing on $242, for a 119% gain so far in the year. Is this Portfolio Grader “A-rated” stock worth investing in? You bet.
PayPal’s growth days are just getting started. But it pays to take a balanced look at this company and its services before making a move.
The Pandemic Strengthened PayPal’s Products
PayPal and its Venmo cash app were already popular — and growing in popularity — before 2020. That growth in adoption was a big part of the PayPal stock story over the past several years. Smart investors were already watching PYPL. But 2020 has ramped this company’s stock up to red-hot status.
The novel coronavirus pandemic has played to all of PayPal’s strengths. It’s a preferred way to pay for online shopping, which accelerated during the pandemic. PayPal’s Venmo cash app has seen huge gains in adoption this year, as everyone looks for ways to avoid handling cash.
The company’s third quarter earnings were released in November, revealing a snapshot of 2020 and the pandemic’s effect on its business. The quarter was the strongest in PayPal’s history. Total payment volume on its platform was up 38% year-over-year. Adding 15.2 million new active user accounts was a 55% gain compared to last year. Venmo transactions of $44 billion were up 61%. Adjusted EPS of 47 cents was up 41% YoY.
With those kind of numbers, it’s no wonder PYPL stock has posted triple-digit growth during this pandemic year.
What You Seldom Hear: The Potential Downsides of Venmo
When talking about PayPal, and specifically the company’s Venmo cash app, the coverage is almost exclusively positive. Especially now. The pandemic has made cash persona non grata, boosting adoption of apps like Venmo. It’s widely expected the move to avoid cash will continue even once the threat of Covid-19 is over. That greatly accelerated adoption of Venmo has been a big part of the PYPL stock story in 2020. Analysts — myself included — have looked at Venmo as being a key catalyst for ongoing PayPal stock growth.
However, I’m going to play devil’s advocate here. Is there a scenario where Venmo stumbles?
Privacy and sharing of your data has been an increasingly important issue, and one that is drawing government scrutiny. While we tend to think about the big tech companies when the issue is raised, PayPal’s Venmo isn’t immune. It has come under fire for sharing location data with third parties when the app is used.
The success of Venmo during the pandemic has not gone unnoticed by legislators. Many people chose to have their stimulus checks directly deposited to their Venmo account. That has raised the possibility of what’s being called a “Public Venmo,” a government-run cash app with no fees, no data collection and no need to have a bank account.
Increased use of Venmo — often by people who are inexperienced with cash apps — has also drawn unwanted attention from criminal elements. According to a Newsday survey, 49% of cash app users say they have been targeted by a scam. Paul Rohmeyer is a cybersecurity expert and an associate professor at Stevens Institute of Technology. He told Newsday:
“Fraud in payment apps is a growing problem and remains substantially higher than fraud in credit or debit cards. In many cases attacks are not technical, but based on social engineering intended to trick consumers into sending funds as partial or advanced payment for bogus goods or services.”
Venmo has also damaged its own reputation by sending debt collection agencies after some app users who have negative balances.
Bottom Line on PayPal Stock
Do I really think that any of the issues I listed will have a big impact on Venmo and derail the PYPL train? No. Any one of them could cause headaches, but nothing insurmountable.
I think it’s important to have a balanced look at something like this. PayPal shares are up a whopping 119% so far in 2020, and the gains in Venmo adoption are no small part of the story. Any potential investor needs to know that as good as the Venmo story has been for PayPal, it is not 100% risk-free. That being said, PayPal remains highly recommended as a growth stock.
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. 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.
