Growth in Digital Payments to Keep Pushing PYPL Stock Higher
Today’s stock is a great example of another of my investing strategies that promises to reward investors. Investing in “toll booth” stocks is one of the best ways to participate in the rising digital payments trend (and make good money). These companies charge small fees to their vast number of customers, and this adds up to something huge.
Given the rise of fintech over the past few years, investors could make big fortunes by taking advantage of these toll booth stocks.
A case in point is Paypal Holdings Inc (NASDAQ:PYPL), which is a leading technology platform that enables consumers and merchants to make digital and mobile payments around the world. PayPal provides reliable, simple, and secure digital payments and financial services through a wide range of payment solutions like “PayPal,” “PayPal Credit,” “Braintree,” “Venmo,” “Xoom” and “Paydiant.”
Well known as a company that was co-founded by Tesla Inc’s (NASDAQ:TSLA) CEO Elon Musk, PayPal has covered a lot of ground to emerge as one of the strongest players in the digital payments space today. PayPal provides payments solutions that are being used by more than 200 million customers globally, and the company boasts of a total payment volume of over $350.0 billion. This has resulted in PayPal stock making impressive gains.
According to estimates by eMarketer Inc., worldwide retail e-commerce sales will grow to $4.06 trillion in 2020, making up 14.6% of total retail spending that year. Moreover, Asia-Pacific will remain the world’s largest retail e-commerce market through 2020, with sales expected to reach $2.73 trillion by 2020. (Source: “Worldwide Retail Ecommerce Sales Will Reach $1.915 Trillion This Year,” eMarketer Inc, August 22, 2016.)
With the rise of the middle class in Asia-Pacific, along with increased mobile penetration in these markets, PayPal stock stands to continue gaining. While everyone talks about the rise of e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) and the demise of retail chains, one thing is certain: more customers are buying online. As consumers continue on this path, companies like PayPal benefit, as their payment services are used by an increasing number of people.
This momentum does not appear to be slowing down any time soon. Just last week, PayPal entered into a partnership with Bank of America Corp (NYSE:BAC), which would enable the latter’s customers to transact with PayPal in stores and seamlessly link their Bank of America cards with PayPal. (Source: “Bank of America and PayPal Partner to Enable In-Store Payments and Account Linking,” PayPal Holdings Inc, July 26, 2017.)
PayPal recently posted impressive second-quarter results, with revenue going up by 18% to $3.14 billion (or 20% on a foreign-currency-neutral basis). The non-generally accepted accounting principles (GAAP) earnings grew by 27% to $0.46. The upbeat results gave a strong boost to PYPL stock, before it cooled off the following day. The company added 6.5 million active customer accounts in the quarter, ending up with 210 million active customer accounts.
President and CEO Dan Schulman said that the impressive results are proof that the company has successfully transformed from a checkout option to an effective way for consumers to manage and move their money. PayPal is focused on creating more strategic partnerships as a way to keep the juggernaut rolling.
Recently, PayPal also completed the acquisition of TIO Networks Corp (CVE:TNC), a leading cloud-based, multi-channel bill payment processor in North America. This will accelerate PayPal’s entry into the bill pay market. TIO Networks’ relationships with billers enables it to quickly process bills for telecom, cable, and other services.
Given the continuing secular growth in the digital payments industry, PayPal stock appears to have a good upwards trajectory. The stock has gained a phenomenal 59% over the last year, and it appears that it will continue riding higher.
Chart courtesy of StockCharts.com
The Bottom Line on PYPL Stock
PayPal is a strong play on the rising digital and mobile payments trend, which is going to get stronger in the coming years. The company lets people make seamless transactions between different markets and networks—and engage in cross-border shopping—by processing payments in more than 200 markets, using more than 100 currencies. With its focus on mobile-first product development, PayPal is preparing itself well for the future. This means that more gains are ahead for PYPL stock as more customers make the shift to mobile.
This is one toll booth stock that an investor could consider for making above-average gains. Since PYPL stock is trading near all-time highs, investors might want to look for signs of price weakness in order to add it to their positions.