(Written by Hailey Nguyen)
After completing the migration from eBay, the giant payment company PayPal is not in love by investors, seeing no gains in 2021.
The stocks of PayPal look broken, but spectators cannot deny the strength of PayPal’s growth story. It has been a leader in the fintech industry since the 1990s, allowing users to make payments from their computers. As society go cashless, apps like PayPal have enhanced options for making payments electronically.
1. PayPal introduces new features and services, adding access to high yield savings, in-app shopping tools, deals and rewards, up to two-day early access Direct Deposit, and bill pay. The new PayPal app will introduce a range of new shopping tools to enable customers to discover exclusive deals, make purchases and earn rewards seamlessly within the app.
The number of consumers using digital wallets is expected to double to 4.4 billion globally by 20251, and nearly half of consumers (48%) already cite simplicity as the top reason to use a digital wallet. PayPal introduces new features and services, adding access to high yield savings, in-app shopping tools, deals and rewards, up to two-day early access Direct Deposit, and bill pay.
With the acceleration of using online payment, we anticipate seeing significant growth for PayPal in the future. Venmo, PayPal's peer-to-peer payments app, has become an increasingly popular option that allows users to spend and collect money, performing transactions with individuals and businesses without needing a wallet or a credit card.
2. PayPal expand its business globally: Paidy is a leading two-sided payments platform and provider of buy now, pay later solutions in Japan and is acquired about $2.7 billion mainly in cash. This acquisition can broaden Paypal’s performance in the domestic payments market in Japan. Paidy is the leader in BNPL in Japan, which has the third largest e-commerce economy in the world. Shopping volume in Japan has more than tripled to around $200 billion in the last 10 years, but more than two-thirds of all purchases are still paid for in cash. The transaction has completed in September. By acquiring Paidy, which has 6 million members, PayPal will increase its presence in the domestic payment market.
3. Ebay migration: "We view the accelerated pace of eBay migration positively, as this headwind will be largely behind PYPL sooner than anticipated, "Bank of America analyst Jason Kupferberg said in a research note. In the Q2 FY2021 earnings call, the payments giant said it still expects revenue for the year to grow approximately 18.5% when adjusting for fluctuations in currencies despite EBay’s move away. It also reaffirmed guidance that it would add as many as 55 million active users this year.
4. Venmo Crypto Wallet: According to Crone Consulting LLC, Venmo’s cryptocurrency wallet is already a top-three crypto wallet world among those with payment features, as measured by active users. The research firm defines an active user as one that interacts with a wallet in any way twice a month, and Venmo has about 18% of the global share.
Some Statistics:
87.5% of online buyers use PayPal
PayPal accounts for 22% of online transactions in the US
People are 54% more willing to buy when a business accepts PayPal
What Bloomberg Intelligence Says:
“We’re still confident guidance can be achieved based on the strength of Venmo, which can exceed $900 million in 2021 revenue, solid momentum in buy now, pay later and in-store QR code payments, better seasonality and growth with new marketplaces.” Julie Chariell, BI fintech industry analyst
Compared to Square who has been willing to take bolder risks than PayPal over the past few years, PayPal's growth remains more predictable since it doesn’t generate significant revenue from cryptocurrencies yet. However, Square’s PE currently is 5 times as PayPal. Unlike PayPal, Square hasn’t provided any concrete targets of its own yet. Square is a more volatile stock.
Bottom Line:
We see upside to shares as consumers increasingly shift toward digital wallets (and away from cash) as a means of transacting, a trend that was accelerated by the COVID-19 pandemic. Moreover, we believe new initiatives such as Buy Now, Pay Later, the ability to buy/sell/hold crypto and the ability to checkout via QR codes at brick-and-mortar retailers are leading to an increase in engagement and provide for additional monetization opportunities over time. Lastly, we are excited for the third-quarter launch of PayPal's new digital wallet "Super App," which promises to combine shopping, payments, and other financial services into one convenient app. We believe the app will make PayPal's offering more competitive versus Square's Cash App while also providing for increased user engagement and monetization opportunities over time - especially as more traditional financial services are brought under the PayPal umbrella.