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Buying Paypal Stock Could Be The Smartest Investment You Ever Make

Nigeria Student Forum / General Discussion / Buying Paypal Stock Could Be The Smartest Investment You Ever Make

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Sani Ibrahim
Abubakar Tafawa Balewa,University
Agricultural economics and extension
100Level, Nigeria.
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With COVID-19 accelerating the shift to digital and online
payments, the company's business is set to soar.
It's no news to anyone that these are trying times for many
companies. As the COVID-19 pandemic continues, industries
such as tourism and travel have been particularly hard hit by
border closures, restrictions, and a general desire by people to
avoid unnecessary risks of exposure. However, great
opportunities can also arise from crises.
For example, social distancing has contributed a strong
tailwind to the transition of business and consumer activity
into the online universe, which has, in turn, driven a boom for
technology stocks .
Among those accelerating trends are the shifts toward digital
payments and e-commerce, and Paypal ( NASDAQYPL ) is a
key beneficiary of those changes. The company has acted as
an intermediary between consumers and corporations since
2000, and its platform boasted 346 million active accounts at
the end of the second quarter.
Here are some reasons why buying Paypal could be the
smartest investment decision you'll ever make.
Image source: Getty Images.
Impressive financial performance
Source: Paypal's 10-K Filings; Author's Compilation. 2020
annualized figures based on first-half results.
Paypal has consistently grown both its revenue and net
income over the years. It nearly doubled its revenue between
2015 and 2019, while net income more than doubled from
$1.2 billion to $2.5 billion. In the second quarter of 2020, net
revenue jumped by 22% year over year to $5.3 billion, while
net income soared by 86% to $1.5 billion.
The annualized revenue and net income data shown in the
graph are based on Paypal's first-half 2020 earnings report, but
investors should note that the company's business
performance improved significantly in its latest quarter due to
the pandemic-induced acceleration in digital commerce and
payments. Second-quarter net income made up around 95% of
the net income for the first half, suggesting that there is a high
chance Paypal's full-year revenue and net-income results will
surprise to the upside.
A highly scalable platform
The operational metrics relating to Paypal's platform have
been equally impressive. From Q2 2015 through its latest
quarter, it achieved more than sixfold growth in net new active
accounts, from 3.4 million to 21.3 million. Over the same
period, total payment volumes more than tripled from $69
billion to $222 billion.
And with many countries encouraging people to switch to
online payments to avoid handling physical cash, Paypal is in a
great position to add many more new users in the coming
years.
A massive total addressable market
Paypal has acknowledged that its total addressable market
(TAM) could be enormous. Back in 2018, the company had
identified a TAM of around $110 trillion in payment volume,
consisting of mobile commerce, peer-to-peer transfers, and
digital services. Market researchers have estimated that the
global-payment processing-solutions market alone could grow
to $78.2 billion by 2026. Paypal's revenue is just a fraction of
this currently, and with its market growing faster than before,
many players within the industry can enjoy concurrent rapid
growth.
CFO John Rainey remarked at the most recent conference call
that Paypal will invest $300 million to roll out a host of new
products in the latter part of 2020 to capitalize on the
opportunities brought about by the pandemic. These new
products may take time to gain traction, but they offer the
tantalizing prospect of adding strong growth to both the
company's user base and its top line.
Still a long runway for growth
PayPal still has a long runway for growth as it continues to
strengthen its platform and expand its presence in multiple
markets. It has also tied up with Mastercard (NYSE:MA ) to
expand its debit-card offering to five new European countries,
and the cash-back program represents an attractive feature
for merchants.
CEO Dan Shulman summarized the company's prospects by
stating that "digital payments have become more important
and essential than ever" because of the pandemic. I concur
with his view and believe that the company is headed for
another multiyear period of strong growth as it rides these
tailwinds.

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