PayPal Holdings Inc: A Safe Way to Play the Crypto Boom?

PYPL stockThis Tech Stock Could Be Special

Cryptocurrencies, particularly Bitcoin, have been making headlines everywhere. Even people who don’t read the financial news would have heard about the massive crypto rally over the past year.

But not everyone is willing to buy Bitcoin.

The bulls may have a point—and depending on who you ask, the price of one bitcoin could go as high as half a million dollars this year. But the bears have an argument, too. And even the bulls can’t disagree that, if Bitcoin shoots to the moon, it will likely experience several huge pullbacks—like the $10,000 swings we saw earlier this year.

Adding in all the noise from regulators and it’s not easy to be a crypto investor, even if you have a long-term bullish view.

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And that’s why I want to talk to you about PayPal Holdings Inc (NASDAQ:PYPL).

As one of the pioneers of the digital payment industry, PayPal stock is familiar to most tech investors. And as tech stocks enjoyed increased investor enthusiasm for most of last year, PYPL stock also had a huge bull run. Over the past 12 months, the company’s share price went from $85.26 to $245.53, marking a gain of more than 185%.

Last October, the company announced that it was launching a new service in the U.S. enabling users to buy, hold, and sell Bitcoin, Ethereum, Litecoin, and Bitcoin Cash directly from their PayPal accounts. Customers can start with as little as $1.00. (Source: “PayPal Launches New Service Enabling Users to Buy, Hold and Sell Cryptocurrency,” PayPal Holdings Inc, October 21, 2021.)

Moreover, PayPal said that, by early 2021, its customers would be able to use cryptocurrencies to pay for things from its network of 26 million merchants.

According to the company’s president and chief executive officer, Dan Schulman, “The shift to digital forms of currencies is inevitable, bringing with it clear advantages in terms of financial inclusion and access; efficiency, speed and resilience of the payments system; and the ability for governments to disburse funds to citizens quickly.” (Source: Ibid.)

Obviously, PayPal Holdings Inc entering the crypto game was good news for cryptocurrencies: the price of bitcoins rose five percent on the announcement.

And things can work in the other direction, too. As cryptocurrencies—particularly Bitcoin—enter the main stage, their increased popularity and usage could lead to a major growth opportunity for PayPal. Think about it: the company makes money primarily by processing customer transactions. As people buy and sell cryptocurrencies and use them to make purchases, PayPal’s platform stands to benefit.

The best part is, PayPal already runs a solid business, meaning it doesn’t need to rely on crypto in order to succeed. According to the company’s latest earnings report, it generated $6.1 billion of revenue in the fourth quarter of 2020, marking a 23% increase year-over-year. (Source: “Fourth Quarter and Full Year 2020 Results,” PayPal Holdings Inc, February 3, 2021.)

PayPal’s total payment volume, a critical measure of a digital payment company’s performance, rose 39% year-over-year to $277.0 billion in the quarter. Its adjusted earnings came in at $1.08 per share, up 29% from a year earlier.

As you’d expect from PayPal’s surging share price last year, the company did well in the stay-at-home environment. In full-year 2020, its revenue grew 21% and its adjusted earnings per share increased by 31% from 2019. Notably, PayPal added 72.7 million net new active accounts during the year.

On the crypto front, PayPal Holdings Inc said that more than 50% of its cryptocurrency holders log in to its platform each day. If strong customer engagement translates to higher transaction volume, it could lead to stronger growth potential for the company.

Basically, what I’m trying to say is that PayPal is a solid company. It is by no means crypto-dependent, but if—and that’s a big if—we actually move from the age of cash to the age of crypto, PayPal could turn out to be one of the biggest winners.

PayPal Holdings Inc (NASDAQ:PYPL) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Investors seem to be moving away from the tech sector, so stocks that previously rallied a lot are generally experiencing a pullback. PayPal stock is no exception, as it has pared quite a bit of its earlier gains since reaching over $300.00 per share in mid-February.

Given PayPal Holdings Inc’s rock-solid business and its potential in the cryptocurrency world, the recent pullback in PYPL stock could be an opportunity for investors.