Outlook Bright for PYPL Stock in 2016
PayPal Holdings, Inc. (NASDAQ:PYPL) is growing at a double-digit rate, despite the barrage of digital payment companies sprouting up all over the world. PYPL stock has seen some volatility over the course of 2015, but it has entered a growth phase. It is now trading at well above $35.00 per share, which is close to $5.00 higher than just a month ago.
The fact that PayPal can still experience this kind of growth in the face of growing competition from the likes of Apple Inc. with its “Apple Pay” and Square Inc., which recently launched an IPO, is proof of the original digital payment company’s strength and potential. While competition may be increasing, the market for digital payments in general and PayPal, in particular, is only going to get bigger.
At the end of October, PayPal reported $2.26 billion in revenue for the third quarter of 2015, which is 15% higher than in the third quarter of 2014, narrowly missing analysts’ consensus estimate of $2.27 billion.
The quarterly net profit, calculated according to generally accepted accounting principles (GAAP) standards, was $301 million, equivalent to $0.25 per share and a 28% increase year-over-year. Adjusted earnings per share (non-GAAP) grew even more, reaching a robust 31%. This translated to an increase from $0.24 per share in the third quarter of 2014 to $0.31 per share in the equivalent quarter of 2015, above the $0.29 per share consensus estimate.
These numbers speak a clear language: PayPal’s business is flourishing and while investors may have been slow to absorb the highly favorable quarterly results and, more importantly, the company’s optimal market position, PayPal stock is starting to respond with potential. Perhaps investors—and analysts even more so—have expected too much from PayPal, as it delivered its first round of quarterly results since becoming an independent company, having spun-off from eBay last summer.
Those focusing on the rise of competition from Apple Pay, Square, or similar apps and startups have not considered the fact that PayPal is the global name in digital payments. More importantly, PayPal has all the technical and business expertise to introduce additional services (such as Square’s fast swipe credit card processing), taking the competition back from the upstarts. If anything, PayPal can draw lessons from how the new digital payment companies are growing and what they are offering and it can adapt accordingly, exploiting the critical mass of its global network and reputation.
The Latest Quarterly Results Are Irrefutable
The results show that PayPal is growing and so is the demand for its services. First off, PayPal’s market covers 200 countries and 100 currencies, which is a market reach none of its competitors can currently compete with. Additionally, the volume of payments made through PayPal in the period between early June and late September was $1.22 billion, up from $1.1 billion in the previous quarter.
PayPal can draw similar conclusions from data concerning the number of active users, which, thanks to its Xoom acquisition, have grown to 173 million, with an average of 27 payment transactions per capita per year. (Source: “PayPal Acquires Xoom and its 1.5 Million Active Customers,” Lowcards.com, November 18, 2015.)
However, mobile phones have become the fastest-growing way to send money. The volume of transactions handled by the “Venmo” app, which is based on PayPal technology, within the last 12 months grew by 200%. (Source: “PayPal reveals how it will finally cash in on Venmo,” VentureBeat, October 28, 2015.)
Mobile technology and the increasing digitization of currency have changed and will continue to change the financial services business. PayPal, more than its competition, has the technology to manage the trend shift, which it can use itself or even sell to others, as in the case of Venmo.
Here’s the Bottom Line on PYPL Stock
The fact that PayPal processed four billion transactions in 2014, a billion of which were made through mobile devices, suggests the trend is growing faster than anyone could have expected. (Source: “PayPal returns to market with $52 billion valuation,” Reuters, July 20, 2015.) Perhaps smartphones will soon change their name to “payphones.”
For the 2015 fiscal year, PayPal expects earnings growth of between 15% and 18%. That bodes well for PYPL stock.