Before a company like PayPal (NASDAQ:PYPL) came along, most payments between buyers and sellers were done the old-fashioned way, by physically mailing checks or cash. You can imagine some of the drawbacks of relying on “snail mail” to handle your important financial transactions. Fast forward to today and PayPal has become the leading digital and mobile payments platform for consumers and merchants all over the world. People can safely and quickly send and receive money with the simple click of a button largely because of how this company has revolutionized the payments space.
While early PayPal investors have already received substantial gains from the rise of this innovative fintech company, there’s enough momentum and growth here to make the company attractive to new investors.
Paypal might just be the best fintech stock to own for the long-term, and here are a few reasons why:
The Decline of Cash
One of the big reasons to bet on Paypal for the long term is the fact that cash is quickly becoming an outdated and inefficient way to pay. With the rise of e-commerce and an increasingly digital-friendly world, it’s only a matter of time before physical money becomes an ancient relic of the past. Since Paypal has already developed a huge electronic payments network with over 392 million active accounts, it’s safe to say that the company is well-positioned to take advantage of the widespread global shift away from physical currencies. Keep in mind that electronic payments only surpassed cash payments on a global basis a few years ago, so there’s a long runway for PayPal’s growth.
When you consider all of the different ways that Paypal can be used to handle transactions, it’s easy to recognize its growth potential. The company offers a quick and easy way for merchants to accept payments online or in-store with multiple sources, including PayPal, Visa (NYSE:V), Mastercard (NYSE:MA), Apple Pay (NASDAQ:AAPL), and more. For consumers, setting up a PayPal account is as simple as linking a bank account or a credit or debit card. The company generates revenue by charging fees for completing payment transactions, and the fact that it appeals to almost any business and consumer in the world should help the company continue generating strong earnings growth for years to come.
Strong Earnings Momentum
We know that the pandemic really helped PayPal gain more market share as businesses of all sizes looked to digitize their operations, and many investors were wondering if the company can continue its torrid pace from last year. That's why it's nice to see the company continuing its strong earnings momentum into 2021. Adding shares of a company with a history of consistent earnings growth that has a ton of momentum behind its business can be a savvy way to grow your portfolio, and PayPal certainly fits that description.
FY 20 was the strongest earnings performance in PayPal’s history, as the company reported a total payment volume of $936 billion, up 31% year-over-year. The company’s 2020 GAAP EPS of $3.54 represented immense growth of 71% year-over-year, and there’s a good chance 2021 will be just as successful for the company. PayPal recently delivered the strongest Q1 results in its history, with a total payment volume of $285 billion, up 50% year-over-year, and revenue of $6.03 billion, up 31% from a year ago. The company’s management also raised its forward guidance, which should give investors confidence in PayPal’s ability to continue executing its strategic goals.
Expanded Offerings & Merchant Rate Increase
Another reason why this is a company that is poised for long-term success is the fact that PayPal is not a one-trick pony. The company continues to expand its offerings to include new and innovative payment services and has a history of making savvy acquisitions that will expand the company’s reach. One great example is the company’s digital wallet application Venmo, which is a mobile phone app that allows users to send and receive cash instantly and has over 60 million users. The app is growing fast, evident in the Q1 numbers which saw Venmo process $51 billion in TPV, up 63% year-over-year. The company recently introduced a Venmo-branded credit card that could help it gain more momentum as the card gives customers cashback on eligible purchases.
It’s also worth noting that PayPal recently announced it will be increasing its rates for merchant fees on some of its transactions. This is the type of news that investors love to see, as it directly impacts top-line growth for the company. Perhaps what’s most noteworthy here is that PayPal feels a rate increase won’t result in lost customers, confirming that the company is confident in the staying power of its business model for the long term.