PayPal Holdings Inc (NASDAQ:PYPL) stock has been on a tear since late January, rising almost 30%. Investors praised PYPL stock after the company delivered an earnings beat on its top and bottom lines. On top of that, PayPal announced the authorization of a massive $2.0-billion share repurchase program. That represented about five percent of PayPal’s market cap at the time. It’s also a sign that management believes PYPL is undervalued.
If you’re kicking yourself for not getting in on PYPL stock’s bull run, don’t worry. It may not necessarily be over. Here are three catalysts that could send PayPal higher.
Last summer, PayPal acquired the online money transfer company Xoom for about $890 million. Xoom was founded in 2001. The company lets people send money and pay bills from the United States to 37 countries including Brazil, China, India, Mexico, and the Philippines. The service is generally used by immigrants in the U.S. who send some of their income to family members in their native country.
PayPal’s acquisition of Xoom will allow the company to grow its user base while also gaining access to new countries to grow its business where Xoom has a large presence.
According to SunTrust Robinson Humphrey analyst Andrew Jeffrey, the purchase of Xoom also gives PayPal the best global “remittance franchise” that also has the best risk management technology in the industry. (Source: “PayPal-Xoom Deal Shakes Up the Payments World,” The Wall Street Journal, July 6, 2015.)
Now that the U.S. is easing restrictions on U.S.-Cuban relations, Xoom will get PayPal into Cuba. PayPal CEO Dan Schulman announced that the company is planning to open up Xoom to Cuba by the end of the year.
Expansion into Cuba will be a huge opportunity for PayPal. About $2.0 billion in cash is sent from the U.S. to Cuba annually, accounting for about three percent of Cuba’s gross domestic product (GDP). (Source: “PayPal Brings Money Transfers to Cuba,” Fortune, March 21, 2016.) Xoom has previously not allowed its users to send money to Cuba.
Growth in Mobile Payments
Growth in mobile payments is exploding. Just this year alone, research firm eMarketer is forecasting that mobile payments will grow 210% this year, with the total value of transactions reaching $27.05 billion this year, up from $8.71 billion in 2015. (Source: “How mobile payments will grow in 2016,” Fortune, October 29, 2015.)
PayPal is generally considered the mobile payments leader, but competition is becoming fierce, with new payment platforms from Apple Inc. (NASDAQ:AAPL) Alphabet Inc (NASDAQ:GOOG), and Samsung Electronics having recently entered the market. However, those companies are not a direct threat to PayPal, since those payments systems must be used in-store. PayPal can be used from any mobile device connected to the Internet.
In the latest quarter, PayPal processed about $20.0 billion in mobile payment volume, up 45% from the previous year. Purchases on a mobile device now account for about 25% of PayPal’s total payment volume.
PayPal is growing fast in mobile and the company will benefit from the rapid growth in the market.
PayPal’s acquisition of Venmo is also set to drive growth.
“Venmo” is a social payments app aimed at millennials. The free digital wallet links to debit and credit cards online and allows users to make and share payments with friends so they can easily split restaurant tabs or cab fares. Transferring money through Venmo is free 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.
In the latest quarter, PayPal revealed that Venmo processed $2.5 billon of transactions, up 174% from the prior year (Source: “PayPal Reports Strong Fourth Quarter and Full Year 2015 Result,” Paypal Holdings Inc, last accessed March 2, 2016.)
While PayPal CEO Dan Schulman told analysts that so far, Paypal hasn’t been able to turn the service into a moneymaker yet, that will soon change. (Source: “You will soon be able to shop using Venmo,” Fortune, October 28, 2015.)
Schulman said the company plans to let merchants accept money through the service and that Venmo will be “fully monetized by the end of next year.” PayPal would charge merchants its typical 2.9% transaction fee. (Source: Ibid.)
Jefferies Group analyst Jason Kupferberg believes that Venmo’s “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.)
PayPal has essentially transformed most of its business towards mobile, and Venmo helps it access a younger market.
The Bottom Line on PYPL Stock
With Xoom entering Cuba, growth in mobile payments, and the company’s Venmo acquisition, PYPL stock looks poised to keep rising in 2016. Investors may want to take a closer look at PYPL stock.