PayPal Was the Original Payments System
PayPal Holdings Inc (NASDAQ:PYPL) was way ahead of its time. After launching in 1998, PYPL stock re-emerged on the exchange in 2015 to dozens of imitators.
Electronic payment systems, “fintech,” mobile payment… There are a dizzying array of terms to describe the new wave of PayPal copycats. At their core, however, they all follow the bedrock principle PayPal laid down more than 18 years ago.
It’s taken that long for everyone else to catch up. PayPal spent the interim partnering with eBay Inc, biding its time till the moment was right. Now that mobile payments are getting hot, splitting from eBay was the smartest thing to do.
I suppose bitcoin was the straw that broke the camel’s back. After all, bitcoin’s true brilliance is the idea of a frictioneless payments system. The other nonsense about a decentralized currency is just barking mad.
In any case, Bitcoin’s high-profile media presence started a revolution in digital payments. The funny thing is that most people forgot that PayPal was already entrenched in the sector. It is the market incumbent.
The Bullish Case on PYPL Stock
I can understand overlooking PayPal for sexier startups if the firm had grown lazy. But that’s simply not the case. PayPal is still a bastion of innovation and its enormous subscriber base is a huge advantage.
From the firm’s new mobile technology to its existing infrastructure, there are dozens of strengths for PYPL stock. Here are the top three.
First off is the sheer size of PayPal’s existing business. Considering this sector is still deemed “young,” 179 million users is downright scary. It is already available in more than 100 currencies and the company is still growing. It added 6.6 million users last quarter. (Source: “PayPal Reports Strong Fourth Quarter and Full Year 2015 Results,” PayPal Holdings Inc web site, January 27, 2016.)
Moreover, PayPal is making sure it isn’t overly concentrated in any one area. Its payment through mobile devices was up 45% in the quarter, but its merchant services also increased by 36%. It’s stunning to see an 18-year-old Internet company grow that fast.
Secondly, there is the mobile payments app PayPal bought in late 2014, Venmo. Venmo has been a great addition to PayPal’s holdings. Around $2.5 billion in payments crossed the platform last quarter, reflecting 174% year-over-year growth. PayPal also made acquisitions to tap into the remittances market. (Source: Ibid.)
And thirdly, but most certainly not least, is the buyback program. PayPal is making so much money that it can funnel huge amounts of cash back to its shareholders. The company earned $9.2 billion in 2015, which gave them room for $2.0 billion in buybacks this year.
PayPal Stock Forecast
What can I say about a company that shows 15% revenue growth while handing back cash to shareholders? To me that’s a perfect combination. It gives you exposure to the rapid expansion of Silicon Valley, yet the company is profitable. Unlike, ahem, most of Silicon Valley.
PayPal also has the experience to manage expectations. The firm’s guidance had an estimated free cash flow of $1.6 million–$1.8 billion by the end of 2015. It hit the top of its target range, which helped the company justify its buybacks. (Source: Ibid.)
And the buybacks are just icing on the cake! In reality, PayPal is a growth stock with the safety of a blue chip. In my mind, PYPL stock could be one of the big winners in 2016.