Digital payment service provider PayPal (NASDAQ:PYPL) is a leader in financial technology. The announcement of its Q4 results has made PayPal stock a must-have in your portfolio. It has reached the top of the digital payment industry in two decades and has become a strong growth stock with time.
Amid the novel coronavirus pandemic, PayPal reported its strongest-ever quarterly growth. The results beat analysts’ expectations, throwing light on the long-term prospects of the stock. In fact, shares have gained more than 40% in the last three months and the company enjoys a market cap of $310 billion.
With all of that in mind, let’s dig deeper into the Q4 results and see what it means for the long-term prospects for PayPal stock.
Record-Breaking Growth Rate
PayPal reported exceptional results for Q4. The company demonstrated its strongest quarterly growth in terms of volume at $277 billion — a 36% rise from the fourth quarter previous year. Interestingly, the payment volume is diverse, ranging from fashion, gaming, home goods and several others. The company reported net income of $1.57 billion, which is up significantly from $507 million in the previous year. The company hit 16 million new active users in the quarter, which is a 72% rise from the previous year and the total active accounts for 2020 stood at 72.7 million.
The revenue for this quarter was up 23% and adjusted earnings were up 29%. During 2020, the company processed a record-breaking $936 billion in payments. PayPal hopes to add another 50 million accounts in 2021 which will drive the growth rate higher. An increase in active customer base will lead to high revenue growth which will outpace the expenses in the coming periods.
Q4 was a strong quarter for the company and the annual results show that the company is ready for a spectacular 2021. It is hard to find anything to criticize in the quarterly report or annual numbers. PYPL saw some benefit from Covid-19, which drove the demand for financial technology across different markets. Many believed that PayPal’s growth will be driven by crypto, but it is impressive to see that the growth is driven by its core business. With the coronavirus pandemic and the lockdown, people had no choice but to opt for online shopping and PayPal made the most of it.
Long-Term Outlook for PayPal Stock
It’s not just the quarterly or annual numbers but how well the company has managed its growth in the pandemic, which matters in the long-term. The core of the company is the business it provides. Online payment will continue post-pandemic, as people will prefer less contact and convenient shopping which will drive revenue for the company. The company processed more than 1,000 transactions a second during the holiday shopping season, and it is nothing less than a feat.
Despite the decline in travel and event verticals, PayPal saw its highest annual payment volume growth rate. As we move toward “normalcy” and with the availability of the vaccine, the travel and events industry will resume. That will contribute to the growth of the company.
Another impressive number in the quarterly report was the free cash flow. PYPL has a free cash flow of $5 billion, which is 23% of the total revenue and is a 48% increase year-on-year. PYPL expects to generate $6 billion in cash flow in 2021-making it a cash flow generating machine. The impressive cash flow is a sign that the company has control over its operating expenses and owns adequate funds to invest in innovation and acquisitions. The company continues to invest in start-ups that add to its valuation and contribute to the global financial system. It also shows that the company is financially stable and going strong despite the pandemic.
Ultimately, with all of these things consider, I don’t have any standout critiques of the company. PayPal stock is a must-own in your portfolio. The company has nowhere to go but up. When you look at the active user accounts and the growth of the transaction volume for the company, it is a clear winner.
The stock is a buy for the long term.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article.