A little over 12 months ago, I wrote an article entitled “Three Things PayPal Stock Needs to Do to Hit $140 in 2020.” It turned out to be the only article I’d write about PayPal (NASDAQ:PYPL) last year.
At the time, PayPal stock was trading around $110. In hindsight — PYPL delivered 2020 returns of 115% — it seems silly to have questioned whether it could repeat its 29% return from 2019 because it obliterated that return.
Called on by the powers that be to write about PayPal in 2021, I hope it’s not my only opportunity this year to discuss one of the more successful spinoffs of the 21st century.
Leaning on my three key points from 2020, I’ll consider whether PayPal has enough gas in the tank to double for a second consecutive year.
PayPal’s Latin American Partnership
As I stated in my 2020 piece, PayPal expanded its partnership with MercadoLibre (NASDAQ:MELI) at the end of 2019. One of my favorite Latin American companies, PayPal, bought $750 million in MELI stock in March 2019 when it first struck up its partnership arrangement.
In a private placement, PayPal purchased 1.72 million shares of MELI stock on March 15, 2019, for $436.10 a share. In the nine months ended Sep. 30, 2020, it had marketable equity securities worth $1.62 billion, up considerably from its $750 million investment.
It appears as though PayPal has sold some of its MELI shares since March 2019. Assuming it kept them all, it would have a return on investment of 355% over less than two years based on a current price of $1,985.
As for the partnership itself, the ties between the two companies have gotten closer.
In May 2020, MercadoLibre allowed users of its MercadoPago payment service to use Paypal for transactions in other parts of the world. In July 2020, the two companies integrated their payment methods in Brazil and Mexico.
“With this integration, about 346mn PayPal customers will be able to buy products from around 500,000 sellers on MercadoLibre,” BNAmericas reported in August 2020.
Since then, I haven’t seen much chatter about the relationship. I’ll continue to look for signs more is happening.
More New Revenue Generation Possibilities
On Jan. 14, news surfaced that PayPal had acquired the remaining 30% of China payments platform GoPay it didn’t already own. PayPal acquired 70% of Guofubao Information Technology (official name) in September 2019.
“In taking full control of one of the smaller players in the world’s largest payment market, PayPal will compete with domestic payments giants Alipay, owned by Alibaba-affiliated Ant Group, and WeChat Pay, owned by Tencent Holdings Ltd, as China fully opens up its financial sector,” Reuters reported.
While many in China doubt PayPal’s ability to compete with existing players in the online payment market, the fact that the Chinese government is cracking down on anti-competitive companies such as Alibaba (NYSE:BABA), combined with its ownership of GoPay should enable it to make further inroads in the Chinese market.
I’d expect to hear more on this front in 2021.
Venmo Monetization Progress
As chief executive officer Dan Schulman stated in its third-quarter 2020 conference call in November, Venmo’s pulled its weight in the quarter.
“Venmo had a very strong Q3 with 65 million users, driving $44.3 billion in TPV [total payment volume], up 61% year over year. Venmo’s growth continues to exceed our expectations and we are forecasting revenue for Venmo to approach $900 million in 2021, driven by investments in new capabilities,” Schulman told analysts on Nov. 3, 2020.
“As Venmo’s revenue base diversifies and scales, its transaction margin continues to improve and we now expect Venmo to also make a positive contribution to our transaction margin dollars in 2021.”
Schulman believes that the transformation Venmo will undergo this year to improve the app’s functionality will drive increased engagement with customers. Add in the Venmo credit card and improvements for Pay with Venmo, and it’s understandable why the CEO is happy with its progress.
More importantly, Schulman expects Venmo to be profitable in 2022.
The Bottom Line on PayPal Stock
If Venmo achieves half of what Schulman says is on its dance card in 2021, while I don’t think it will pull off a second consecutive year doubling its share price, I could easily see it deliver a 29% increase as it did in 2019.
Trading at $235 at the end of 2020, it ought to be able to make it to $300 by next Christmas.
Long term, PayPal is a strong buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
