PYPL Stock Is a Silent Goldmine
Given the rise of financial technology (fintech) over the past few years, retail investors should have taken a closer look at PayPal Holdings Inc (NASDAQ:PYPL).
Too bad Bitcoin (BTC) was in the way.
It’s no one’s fault, really. Bitcoin and other cryptocurrencies are an extraordinary investment tale, riddled with overnight millionaires and yellow “Lamborghinis.” How could a simple payments company hope to compete?
Nevertheless, PayPal stock quietly doubled in the last two years. It may be dull and lacking in glory, but the fact remains that someone who invested $10,000 in May 2016 would have $20,888 in their trading account today.
Chart courtesy of StockCharts.com
That is, by the normal standards of capital markets, an impressive return.
Can it happen again? This report examines that very question by looking at PayPal earnings, our old PayPal stock forecasts, and where the fintech market is headed in 2019.
PayPal Earnings Beat Expectations
How many 20-year-old companies still generate more than 20% revenue growth?
Short answer: not too many.
PayPal bucked that trend yet again by delivering 24% revenue growth; 33% earnings per share growth; and $1.8 billion back into the hands of shareholders. (Source: “PayPal Reports First Quarter 2018 Results,” PayPal Holdings, Inc., April 25, 2018.)
Below are a few other details from the earnings report:
- 8.1 million new accounts, up 35%;
- 2.2 billion payment transactions, up 25%;
- $132.0 billion in total payment volume, up 32%;
- 34.7 payments per active account, up eight percent.
While these figures give you a decent snapshot of PayPal stock, there’s only one number that peels back the curtain on its success: customer support expenditure.
Cutting service costs was a game-changer. In 2015, the company was spending 13.2% of its revenue on call centers and staffers—now that number is down to 9.5%.
The big change came when PayPal realized it was not a product, but a platform. From that point onward, PayPal was payment-agnostic. Management even hammered out a deal with Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA), two titans that could force PayPal to pay exorbitant fees.
Ten years ago, the prospect of those credit card fees would have kept PayPal far, far away.
Now it was worth the pain. The company coughed up a little extra in payment fees, cut back on grooming its customers, and voila—PYPL stock shot through the roof.
It’s a simple recipe. And one that PayPal intends to replicate.
Where Is PayPal Stock Headed?
What’s next? That’s the question you might reasonably ask about PayPal stock, given that it has already inked deals with Visa and Mastercard.
- Expand internationally.
- Expand technologically.
To accomplish the first goal, PayPal bought a company called iZettle. This acquisition puts it in 11 new markets, including Brazil, Denmark, Finland, France, Germany, Italy, Mexico, Netherlands, Norway, Spain, and Sweden.
That’s 500,000 brand new customers.
Although the deal weakens PYPL stock’s earnings per share by approximately $0.01, it could pay for itself within months. (Source: “PayPal Significantly Expands Global Omnichannel Platform With Acquisition of iZettle,” PayPal Holdings, Inc., May 17, 2018.)
As for the second item—”expand technologically”—PayPal is looking to integrate with all of Google’s services.
It is already functional with “Google Pay,” but you currently have to leave the app to sign into your PayPal account. That won’t be the case going forward. With the new system, PayPal will be accessible on “Gmail,” “YouTube,” and the “Google Store.”
“We are always looking for ways to improve the experience and to make payments even more seamless and secure for our customers wherever they want to pay,” said Bill Ready, the executive vice president and COO of PayPal. (Source: “PayPal starts deeper integration with Google; users can now pay directly in Gmail, YouTube and more,” TechCrunch, May 24, 2018.)
This is what I mean by “payment-agnostic.”
PayPal simply doesn’t care how you access your account; it just wants you on the platform. It knows there are too many options to choose from. The company knows it can’t afford to be difficult.
Give me a winning business, I’ll give you a winning stock. That’s the easiest formula in the world, yet most investors continue to believe in stock charts and technical data.
Sorry to break the magic, but charts are a hazy reflection of the market, nothing more. Fundamentals, on the other hand, reflect reality. And reality will always lead the market over the long term. Remember that when it comes to PayPal stock.
After all, this is the company that maintained its relevance in fintech despite operating in the era of Bitcoin. It is not a company to be ignored.