PayPal Holdings Inc (NASDAQ:PYPL) stock currently holds around a 30% market share of the e-commerce payment volume in the United States. The company is expected to expand its position further as it continues to innovate and pursue growth opportunities, including partnerships across the digital payments landscape.
Tech giants such as Apple Inc (NASDAQ:AAPL) and Alphabet Inc (NASDAQ:GOOG) (also known as Google) are now offering mobile payment solutions: “Apple Pay” and “Android Pay,” respectively. Despite this increasing competition, PayPal stock has demonstrated that it is growing stronger than ever. The company’s earnings, revenue, market share, and customer base increased during the second quarter.
PayPal started trading its stock for $38.63 per share after its separation from eBay Inc (NASDAQ:EBAY) on July 6, 2015. PYPL stock is currently trading around $40.50 per share. PYPL stock is expected to trade higher as the company continues to deliver solid profits over the long term.
PayPal Stock Financial Performance
During the second quarter, PayPal stock reported that its adjusted earnings climbed 11% to $0.36 per share, and revenue increased 15% to $2.65 billion. PYPL stock earnings were in line with the consensus estimate of Wall Street analysts while its revenue beat their expectations.
PayPal stock’s total payment volume rose 28% on a spot basis to $86.0 billion. Its mobile payment volume grew 58% to $24.0 billion, representing 28% of total portfolio value (TPV) during the quarter.
PayPal’s active customer accounts were 188 million, an increase of 11% during the quarter. Its active merchant accounts were 14.5 million including leading companies such as Inter IKEA Systems B.V., Carnival Corp (NYSE:CCL), and Cathay Pacific Airways Limited (HKG:0293). PayPal processed 1.4 billion transactions, up by 25% during the quarter.
Looking forward, the company expected to achieve an 18% growth in adjusted earnings to $1.50 per share and as much as 20% increase in revenue to $10.85 billion for full fiscal 2016. (Source: “PayPal Reports Strong Second Quarter Results and Raises Revenue Outlook,” PayPal Holdings Inc, July 21, 2016.)
Partnerships Serve as Catalyst for PayPal Stock
PayPal recently entered into a strategic partnership with Visa Inc (NYSE:V) and expanded its partnership with Mastercard Inc (NYSE:MA) to improve customer experience by providing them with more options to pay.
The agreements will also help PayPal magnify its presence at the point of sale or into the stores, and customers could instantly withdraw and move money from their PayPal accounts to their bank accounts through their Visa or Mastercard debit cards.
PayPal CEO Dan Schulman also mentioned during the company’s earnings call that PayPal is in talks with various potential partners and strengthening its efforts with Alibaba Group Holding Ltd (NYSE:BABA), Pinterest, Inc., eBay, and Google. He also indicated that the e-commerce company continues to expand its partnership with Facebook Inc (NASDAQ:FB).
Vodafone Italia SPA recently integrated PayPal into its mobile payment solution “Vodafone Wallet.” Consumers in Spain and Italy can now tap-and-pay in stores with PayPal and Visa.
According to Schulman, PayPal wants to become a “customer champion” to ensure its long-term growth and success. He believes that the company’s partnerships will help bring PayPal closer to capitalizing on its huge market opportunity. He noted that PayPal’s total addressable market opportunity increased to $100.0 trillion, including digital commerce and digital money.
Other Growth Drivers
“Venmo,” a social payments app popular among millennials, became part of PayPal after eBay acquired Braintree, a payment processing startup, in 2013. (Source: “eBay Inc. Completes Acquisition of Global Payments Innovator Braintree,” eBay Inc, December 19, 2013.)
PayPal started monetizing Venmo by allowing merchants such as Munchery and Gametime United, Inc to accept the app as a payment option. According to PayPal, Venmo is growing fast, as it processed $3.9 billion in peer-to-peer (P2P) payments in the second quarter, an increase of 141% year-over-year.
Take note that Venmo charges thee percent whenever its users make P2P payments using a credit card. There are 3.5 million Venmo users by the end the second quarter of this year.
In the first half of 2017, Venmo users will be able to start using the app to make purchases in stores. A company executive confirmed that Venmo and PayPal in-store digital wallets will use near field communication (NFC) technology, which will initially be available on “Android” smartphones. The company is also in discussions with Apple for a potential partnership in the future. (Source: “Soon you’ll Venmo stores to buy things“, Quartz, September 8, 2016.)
PayPal also owns Xoom Corp (NASDAQ:XOOM), a global online remittance company, which it acquired for $890.0 million last year. Xoom allows consumers in the United States to send money to their loved ones in 53 countries worldwide. In the second quarter, 74% of consumers’ transactions were made on mobile devices.
PayPal is extending its business globally through Xoom, which charges a transaction fee of $4.99 to users sending up to $2,999 using their bank accounts. The transaction fee is $5.99 if they use a debit or credit card.
The Bottom Line on PYPL Stock
PayPal is a leader in the digital and mobile payments market. It is among the 100 most valuable global brands. The company has a competitive advantage because its technology works with any browser, mobile operating system, or device— including personal computers (PCs), smartphones, and tablets. Its digital wallet can do mobile, P2P, point-of-sale, in-app, online payments, and global remittance using bank accounts, debit cards, or credit cards.
I believe that PayPal stock will remain profitable over the long term because it has several revenue streams. It can also take advantage of its leadership position to get a larger slice of its massive addressable market.
Management’s commitment to serving and delighting its consumers will make PayPal a great and successful company. According to Warren Buffett, “Customer delight is the main ingredient to success. Any business that has delighted customers has a sales force out there.”
In other words, PayPal is a company that can offer investors high returns. Wall Street analysts believe that it can outperform the market, and they have forecasted that PYPL stock could gain as much as 34% ($54.00 per share) over the next 12 months.