PayPal (PYPL) emerged as one of February’s big winners, jumping more than 10 percent in the month. Naturally, we’re all wondering what happens next.
The stock is currently priced around $94. For those who do not know, PayPal provides a digital payment platform. It is interesting to note PayPal did not have any particularly positive news to stimulate February’s significant stock price boost. Though PayPal’s January earnings report was just as good as expected, there is nothing particularly noteworthy about the company’s recent performance. So, where did this jump come from?
PayPal’s fourth quarter earnings revealed more of the same for the digital payment processing company. PayPal’s earnings jumped more than 20 percent on a year-over-year basis. The company’s non-GAAP earnings per share grew by more than 25 percent compared to the same period last year. PayPal’s active accounts have now hit the 270 million mark. This spike represents a 17 percent hike compared to the same quarter from a year ago. PayPal’s payment volume grew by 25 percent. Transactions per customer account is widely considered one of the more important metrics for customer engagement. PayPal has shined bright in this category, holding steady quarter after quarter with a 10 percent growth rate.
It appears as though PayPal is growing by leaps and bounds, acquiring a steady stream of new customers and making good money providing a valuable service for people around the world. Though it is hard to believe, some PayPal bears exist. A surprising number of Wall Street analysts recently downgraded the stock. The motivation for the downgrade was PayPal’s run-of-the-mill fourth quarter performance. Nowadays, if a company does not beat its performance in the same quarter from the year prior and show an exemplary growth rate, the analysts start to worry. Savvy investors understand there is no reason to worry about PayPal’s recent financial quarter.
Though PayPal might not blow earnings expectations out of the water like other tech superstars, the bottom line is this company has amassed nearly $600 million in yearly payment volume. PayPal will likely continue to impress with double-digit growth rates in the most important performance metrics for years to come. If you have any question as to whether PayPal has become nearly ubiquitous, ask those in your social, professional and family circles if they use this service. Most will reply in the affirmative.
At the moment, PayPal is the clear winner in its space. In fact, one of the main alternatives to PayPal is one of the company’s own subsidiaries — Venmo. This peer-to-peer payment app has been a bit challenging to monetize, yet it has considerable potential. Some have criticized PayPal for drawing inspiration from Square when designing Venmo. The question is how quickly PayPal can monetize Venmo, and how much market share can be captured.
A good number of merchants have hopped on board with the uber-convenient “Pay with Venmo” option. PayPal executives credit the Venmo app with boosting overall payment volume by a remarkable 80 percent last year. All in all, $62 billion was processed. There is a good chance Venmo payment volume will breach the $100 billion mark in 2019. If current projections hold true, Venmo will generate yearly revenue of $120 million or more.
PayPal seems like a solid investment on the surface. However, the stock is currently trading at a fairly high price to earnings ratio (P/E) of 28 times next year’s anticipated earnings. When push comes to shove, it is hard to get excited about PayPal as the company simply helps people transfer money. PayPal’s Venmo payment service is certainly intriguing, yet it will likely take several years for this app to saturate the mainstream.
Look for PayPal’s stock to hold steady or possibly increase in the months ahead. Though you will pay a premium for PayPal at its current price, the company has few weaknesses of note. The stock is currently priced at $94 and change. Investors should not be surprised if PayPal breaks through the $94 threshold by some point this spring or summer.
Regards,
Ethan Warrick
Editor
Wealth Authority
