PayPal Stock (PYPL): Is It a Good Buy?


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Established in 2000, PayPal provided a payment hub for the online auction site eBay, which bought the company in 2002. In 2015, eBay separated PayPal as an independent operation which has since grown into the largest company. of online money transfer to the world. PayPal remained an important part of eBay until 2021, when the auction site began paying sellers directly rather than through the PayPal platform.

About PayPal and features

With its subsidiaries Venmo and Xoom, PayPal offers web and mobile platforms. Customers can pay for goods, send and exchange money, and borrow. Through PayPal Credit, the company allows customers to access lines of credit.

A crypto platform allows members to buy Bitcoin, Ethereum, and other virtual currencies and use those virtual assets for purchases. For a fee, the platform converts the crypto into the equivalent currency at the time of sale.

The growth of “Buy Now, Pay Later” online retail has provided PayPal with another increase in revenue. In this type of transaction, a customer can defer payment for an item purchased for several months or a year. PayPal asks the seller for a small discount on the purchase price and pockets the difference when the buyer finally completes the payment.

The pandemic was no problem for PayPal

These in-demand money services have brought the company solid revenue and net profit growth over the past decade. PayPal stocks were already a hot item for institutional and individual investors for several years at the start of the pandemic year of 2020, when lockdowns and shortages pushed many buyers to online retail platforms.

That year, COVID-19 restrictions on in-person purchases significantly boosted traffic to PayPal and its affiliates. Profit growth reached 71% in fiscal 2020, more than tripling the 19% growth rate of 2019.

The second quarter of 2021 saw a sharp increase in payments volume, which climbed 36% year on year to $ 311 billion, while new active accounts from 2020 to 2021 fell 47% to 11.4 millions. Second quarter 2021 net sales increased 17% to $ 6.24 billion and earnings per share reached $ 1.

Service innovations

PayPal has been the financial industry leader in digital innovations since 2020. The company revamped and updated its platform in fall 2021 with a host of new features. Customers now have access to automatic bill payment and high-yield savings accounts, as well as access to two-day early direct deposit. Online shoppers have a range of new tools built into the app, including:

  • Rewards redeemable for cash
  • Gift cards
  • Charitable donation
  • PayPal purchase credit
  • Instant access to merchant discounts

The company introduced a paper check-cashing feature to Venmo members in the US and launched contactless QR payments for small businesses through its Europe-based Zettle. Xoom, PayPal’s money transfer subsidiary, has expanded its services to 12 markets in Africa.

PayPal trading platform

PayPal is also developing a trading platform for stock investors, a response to the phenomenal growth of trading platforms offered by Square, SoFi, E-Trade and Robinhood. After being the first in online auctions, PayPal does not want to miss the trend of individual investors drawn to the markets by the ‘gamification’ of trading on commission-free Robinhood and the earnings posted by post-COVID-19 markets. .

Although there are regulatory hurdles in building a new trading platform, PayPal has a big advantage in the form of a huge established customer base of over 400 million.

Competetion

With these new services, however, PayPal is struggling to keep pace. The paid online money transfer business has attracted major banks as well as competition from established European companies seeking to locate in the United States.

In October 2021, UK-based SumUp, a point-of-sale card reader company, purchased Fivestars, a San Francisco-based digital marketing company. The new company will be in direct competition with Square, a similar US-based company, but it also poses a market share threat to PayPal.

PayPal security risks

PayPal is also sensitive to the digital plague of hacked accounts, stolen identities and mysteriously missing funds. The app has a reputation for security, and PayPal has avoided major negative publicity on customer privacy concerns. But hacked PayPal accounts are available on the dark web, for a fee, and a computer investigator found that the value of those accounts nearly tripled during the pandemic.

“Cloud outages” and technical difficulties also pose a danger to the wider acceptance of online money services. If something goes wrong, PayPal customers should connect with others for the dreaded customer service call. Amid these unpredictable computer problems and the constant pace of hacking stories associated with credit cards, banks and retailers can put the brakes on the future growth of PayPal and its competitors.

P / E and Profit Trends

PayPal stock has been an institutional favorite for several years, and investors considering investing in stocks may want to consider the possibility that rapid future growth is already embedded in stocks. The return of in-person shopping after COVID could also blunt the phenomenal rate of growth the company enjoyed in 2020, leading to unimpressive year-over-year comparisons.

By October 2021, PayPal had reached a high valuation, with a price-to-earnings ratio of around 65. This is a premium over the market average, but average for the company over the past five years. The price-to-earnings ratio has fallen since reaching over 100 in 2020.

Earnings comparisons over the next few quarters may also reflect PayPal’s exit from the eBay platform in 2021. The separation of the two companies was amicable and long-term investors such as hedge fund Wedgewood did not. not been discouraged.

“We continue to view PayPal as a core position,” Wedgewood said in its third quarterly newsletter, “and believe eBay represents a short-term noise in PayPal’s long-term drive to become a“ super everything ”with payments at its heart. “

Is PayPal Stock a good buy?

PayPal has grown into a great, reliable and innovative operation since its beginnings with eBay. It also enjoys global brand recognition and acceptance.

However, innovation does not always translate into growth, and those considering a new investment in the business may want to consider what the principle of “creative destruction” might mean for online platforms such as PayPal. .

Cryptocurrencies, for example, remove financial transactions from the control of institutions, banks, and money transfer companies and transfer them to individual savers, buyers, and traders. With the widespread use of digital wallets, will the masses really need a paid online money transfer business?

Good to know

PayPal has been a reliable innovator, responding to market expectations with a series of new features, services and capabilities. Always on the lookout for new paradigms, investors have also been drawn to PayPal’s status as a leading “neo-bank” that directly challenges institutions such as JPMorgan, Wells Fargo and Bank of America.

Our in-house research team and on-site financial experts work together to create accurate, unbiased and up-to-date content. We check every statistic, quote and fact using reliable primary resources to make sure the information we provide is correct. You can read more about GOBankingRates processes and standards in our Editorial Policy.

About the Author

Writer and editor with over 100 book credits in the non-fiction format for youth and young adults, Tom Streissguth has mastered the art of clearly explaining complex and difficult topics. His books have covered history, geography, economics, media and current affairs; he also wrote biographies of historical figures for Lerner, Enslow, Facts on File, Greenhaven and other major educational publishers.


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