PayPal Stock Isn’t Just About Delivering Profitability

Too often, the burgeoning technology sector gets a bad rap for its disruptive tendencies. Most commonly, we hear tales of e-commerce firms displacing brick-and-mortar businesses. Typically, we don’t hear the other side of the coin, where companies like PayPal (NASDAQ:PYPL) leverage their innovative platforms for the greater good. This is one of the key, underappreciated reasons why I consider PayPal stock a core holding.

PayPal (PYPL) logo overlays daylight photo of corporate building
Source: JHVEPhoto / Shutterstock.com

Recently, the payment-processing specialist’s management team emphasized its longstanding efforts in promoting racial justice, announcing “an extra $5 million in grants in a bid to support black and minority-owned businesses, as well as communities in the United States.” Since June, the company “has made continuous efforts to fulfill its $530-million commitment designed to meet the needs of Black-owned businesses for their survival.”

Of course, it’s hard not to get a little jaded when hearing news items like this. But rather than a cynical ploy to bolster the bullish case for PayPal stock, this in my opinion is a genuine reflection of how rising tech can finally deliver meaningful social change.

Over the last few years and before the novel coronavirus pandemic, a strong economy combined with declining unemployment rates contributed to a decline in the number of the unbanked. Unfortunately, not every segment of society has benefited. According to the Detroit Free Press:

“Millions of consumers — including people of color — aren’t able to easily cash a check or visit an ATM because they’re not customers of regular banks.

“The top reasons given for not having a bank account include not having enough money to meet minimum balance requirements, not trusting banks, bank account fees are too high, bank account fees are too unpredictable.”

Banks are getting creative with their service offerings, attempting to woo new customers. However, nothing can beat out the convenience, intuitiveness and relevance of digital payment platforms. This will continue to lift PayPal stock longer term.

PayPal Stock and the Pandemic

Indeed, digital payments is one of the main catalysts for social equity. On an elemental level, banking access is a problem, particularly with soaring Covid-19 cases. Further, Harvard Health Publishing reported that communities of color have been “devastated” by the pandemic. PYPL’s contactless platform encourages social distancing, keeping people safe and thereby increasing the ESG (environmental, social and governance) cred of PayPal stock.

Moreover, if we have a K- or L-shaped economic recovery, PayPal’s services will be even more crucial for all communities. For instance, the number of the unbanked increased conspicuously following the events that sparked the Great Recession. The Federal Deposit Insurance Corporation (FDIC) now reports that the financial and labor market pressures from the pandemic could see a rise in the number of the unbanked.

But PayPal stock is more than just an answer to these “negative” catalysts. Even in the best-case scenario (a V-shaped recovery), the underlying platform offers flexibility that traditional banks can’t match. That’s because PayPal is really a brand of the gig economy.

The Great Migration

In recent years, millennials have begun migrating away from large urban centers to smaller or more rural towns. Largely, this is due to exponential advancements in technologies of connectivity. With the ability to work anywhere, there was simply no point for young people to pay the often onerous costs of living in major metropolitan areas.

Naturally, the Covid-19 pandemic will accelerate this migration trend, as the U.S. adopted remote work under a baptism of fire. Now, anyone who wants to hook into the gig economy can theoretically do so. As well, certain states have laws that are far more conducive for the entrepreneurial spirit.

Employment level of popular millennial destination states vs. U.S. average
Click to Enlarge
Source: Chart by Matt McCall Research Staff

It’s not even close. For example, Utah’s employment level has grown nearly 37% since the fourth quarter of 2003. Other popular destination states for millennials, such as Arizona and Colorado, have seen 33% and 28% growth over the same period, respectively.

In contrast, the U.S. employment level growth since Q4 2003 is a pedestrian 5.7%.

PYPL Is Constantly Evolving

And the migration is another reason why PayPal stock is really the twenty-first-century version of the banking platform. As millennials move to less-populated parts of the U.S. — and perhaps other areas across the globe — PYPL adapts to them, not the other way around.

In other words, as the end-user evolves, so too does PayPal. Essentially, wherever there is internet access, there is access to a robust payments system. Unfortunately, you can’t say the same about the traditional banking architecture.

Therefore, keep close tabs on PayPal stock. No matter which way the economy turns, the underlying company will provide relevant, convenient services.

On the date of publication, Matthew McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.


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