More Opportunities Ahead for PYPL Stock
Paypal Holdings Inc (NASDAQ:PYPL) reported earnings on Wednesday and CEO Dan Schulman called it his “best quarter ever” since he joined the company a couple of years ago. So what made the quarter so special?
Total payments volumes exploded to $81.0 billion, up 29% from a year ago and above analysts’ expectations of $79.0 billion. Revenue also increased an impressive 19%. But apparently that wasn’t good enough for Wall Street analysts, as PYPL stock only shot up about 2.5% on the news.
However, PayPal has several catalysts in the works that could surprise investors in future earnings reports and send PYPL stock flying. Here’s a look at a couple of them…
Schulman called “One Touch” PayPal’s most rapidly adopted service in the company’s history and cited the huge potential the product has.
So what’s One Touch?
PayPal introduced the service last year across the mobile Web to selected merchants. Now, it’s available everywhere.
One Touch only needs a user to log in once with PayPal so that all the user’s payment information can be saved on the mobile device. This allows the user to purchase goods online with just one click. It eliminates the tiresome process of filling out address and billing forms.
But what’s great about the service is that since it makes the checkout process so fast, a customer won’t have time to have doubts about making a purchase. Ok, that part may not be good for the customer, but it’s great for the merchant. But, like I mentioned, it is fast and that’s great for the customer, as it simplifies the checkout process.
One Touch sounds like such a simple product and almost not worth mentioning, but, like Schulman said, it’s a hit with users. In December, One Touch had approximately 10 million users from 23 countries. Now PayPal says that 21 million people have signed onto the service and merchants from 144 markets are using it. (Source: “PayPal Profit, Revenue Rise as It Looks to Stand Out in Crowded Payments Sector,” The Wall Street Journal, April 28, 2016.)
So how will One Touch benefit PayPal? The service has an extremely high conversion rate, which means more money in PayPal’s pockets. According to a recent study, PayPal customers are making 15 million transactions a day using the feature and they are completing their purchases 87.5% of the time. (Source: “New study puts PayPal at the forefront of digital buying,” Business Insider, April 22, 2016.)
That number puts it well ahead of rival Visa Inc (NYSE:V), whose “Visa Checkout” has a 55.1% conversion rate. Users of other platforms, which includes all other forms of payment, such as card on file, has a conversion rate of 45.6%. (Source: “New study puts PayPal at the forefront of digital buying,” Business Insider, April 22, 2016.)
One Touch is still in its early stages and PayPal isn’t making much off of it yet, but the potential is huge for future growth. Only 7.5% of PayPal’s 179 million customers are using One Touch, but it’s gaining steam fast.
PayPal says that it’s focused on increasing customer engagement and platform expansion into areas like social media and mobile. “Venmo” does exactly that.
Venmo is a social payments app aimed at millennials. Users can make in-app purchases on such items as food deliveries or sports and concert tickets. They can also share payments with friends via Venmo, so they can easily split cab fare or a restaurant bill.
PayPal acquired Venmo in 2013, when it purchased Braintree. Since that time, Paypal has essentially transformed most of its business towards the mobile space; Venmo helps it do that while accessing a younger market.
Transferring money through Venmo is free for the moment if the account is linked to a bank account, but if drawing from a credit card, the user is charged 2.9% of the amount transferred.
PayPal hasn’t monetized Venmo yet, but the potential for future revenue is huge. In the latest quarter, Venmo processed about $3.2 billion in payments volume, up 150% from last year.
Investment firm, Jefferies, believes that the “Pay With Venmo” platform could add between 2.1% and 5.5% to 2017 earnings. (Source: “PayPal (PYPL) Stock Advanced as Jefferies Cheered ‘Pay With Venmo,” TheStreet.com, February 29, 2016.)
The Bottom Line on PYPL Stock
PayPal is going into the rest of 2016 with a lot of momentum, as all the important numbers, such as revenue and payments volume, are looking good. For the future, though, PayPal has huge potential with One Touch and Venmo, and that should be a boon for PYPL stock.