Welcome to the mountain top, Paypal Holdings Inc (NASDAQ:PYPL). PYPL stock made fresh all-time highs Thursday after the digital payments giant reported blowout second-quarter results.
Paypal reported that revenues rose 20% year-over-year to beat analyst expectations. Earnings per share increased 27% year-over-year, also healthily topping analyst expectations).
PYPL stock shot 2% higher, bucking the broader tech names sell-off.
While the shares gave up most of those gains on Friday, long-term investors shouldn’t be worried. It’s just some profit-taking noise and a meaningless pause in an otherwise strong upward trend.
Here’s the game plan for PYPL stock: Let the weak hands exit, let the positive headlines and partnership announcements roll in, let the company keep blowing past analyst estimates, and watch PYPL shares continue to grind higher.
Is the game plan that simple? Lets take a deeper look and find out.
Paypal’s Growth Is Accelerating
Perhaps the most seismic shift that has occurred in the markets over the past several years is the flow of dollars from traditional brick-and-mortar retail giants to major e-commerce players. Simply, consumers aren’t shopping in stores anymore. They are doing it from the convenience of their homes.
The biggest winner in this transition is Paypal.
As shoppers move online, so do payment methods. The rise in popularity of digital payment methods is simply a natural byproduct of the e-commerce transition. So long as shoppers continue to migrate to online channels, the usage and popularity of digital payment methods like Paypal will continue to soar.
That is the fundamental backdrop for PYPL. It’s a very strong trend that’s not slowing. Across the board, every growth metric that matters at Paypal is either improving or staying at a sky-high rate.
Consistent and Steady
Total payment volume was up 26% in the second quarter. It was 25% both last quarter and the quarter before that. Meanwhile, the number of payment transactions grew 23% in the second quarter, which is the same growth rate seen in the prior two quarters. Consistent and steady.
On the user base front, PYPL added 6.5 million active customer accounts in the second quarter. That number was 6 million added last quarter and the 5.4 million added the quarter before that. Consistent and steady.
On the merchant front, PYPL added about 500,000 merchant accounts in each of the last two quarters. In the second quarter alone, PYPL added 1 million merchant accounts.
Consistent and steady. Get the picture?
Overall, the topline growth narrative just keeps getting better. Revenues rose 20% year-over-year in the second quarter. That is better than the 19% mark Paypal reported in each of the prior two quarters.
The Bottomline on PYPL Stock
This acceleration in the topline growth narrative is being accompanied by an equally impressive acceleration in the margin growth narrative. Operating margins jumped 110 basis points in the second quarter. That compares to just a 50 basis point increase last quarter, and no growth in operating margins the quarter before that.
The improving margin performance coupled with improved topline trends means the earnings growth picture is doubly improving. Earnings per share rocketed 27% higher in the second quarter, much better than the 19% growth mark seen last quarter and the 17% growth mark reported the quarter before that.
No matter how you look at it, PYPL’s growth story is getting better. And that’s impressive, considering the growth narrative was one that comprised of high-teens earnings growth.
Consistent and steady. The growth story just keeps getting better, so PYPL stock will keep heading higher. This is a growth stock that will inevitably grow into its valuation.
As of this writing, Luke Lango was long PYPL.
