The Tipping Point for PYPL Stock
PayPal Holdings Inc (NASDAQ:PYPL) is riding a trend so hot that I need oven mitts just to write this piece. The trend I’m talking about is completely changing the way money travels through the economy, and it could completely change perceptions of PYPL stock.
I’m talking, of course, about mobile payments apps. Consumer culture is at an all-time high, but people are using cash less and less. They are buying things on their laptops, smartphones, and tablets. Even when they want to transfer money to friends and family, people are using mobile payments apps instead of more traditional methods.
And when we think of which company is the market leader in digital payments, it’s hard not to think of PayPal. The company was established in 1998, far before the current craze really took hold.
The company is the market incumbent. It seems obvious to me that, having been around so much longer than its peers, PayPal is better positioned in the industry. For instance, it already has enough cash to buy young startups like Venmo or Xoom.
Both of those apps have loyal, tech-savvy consumer bases that help diversify PayPal’s product portfolio. Venmo is a peer-to-peer service that processed $1.0 billion in transactions during January. It was a landmark moment for the app, reflecting a tenfold increase from just two years ago. (Source: “$1 Billion Served,” Venmo web site, February 16, 2016.)
PayPal also has a lot of corporate clients that it inherited through the acquisition of Braintree. Companies like Airbnb and STUBHUB use Braintree apps to allow customers to sign up electronically. (Source: “Venmo, beloved millennial app, is finally trying to make some money,” Quartz, January 26, 2016.)
If you’ve ever booked a vacation spot with Airbnb, or bought secondhand tickets on STUBHUB, know this: these businesses paid a small fee to PayPal to get your business. You didn’t have to pay a dime for the transaction, but PayPal still managed to get rich.
All around the world, startups are popping up like weeds. They span all sorts of industries and appeal to all sorts of customers, but there’s one thing that unites them: they all make transactions. Whether it’s on the supply chain side, or on the billing side, businesses need to move money to other businesses.
But no one wants to endure the agonizing wait times for wire transfers when they can simply use a mobile payments app. The tradeoffs are absurdly one-sided. That’s why industry experts think the payments market could reach $2.0 trillion as early as 2020. (Source: “Global Payments 2015: A Healthy Industry Confronts Disruption,” McKinsey & Company, last accessed April 7, 2016.)
I have PYPL stock pegged as one of my favourites for this emerging market. Most of its rivals are either startups or big banks. They’re either specialized on payments and broke, or rich and not specialized in payments.
PayPal is the only true payments company with deep enough pockets to afford a broad portfolio. Investors will eventually see that as the market matures, capital will flow to the strongest players in the industry. I wouldn’t be surprised if PYPL stock more than doubled in the next 12 months.