A 5.5% pop on Wednesday was enough to make shares of PayPal (NASDAQ:PYPL) the best performer on the S&P 500 index as they closed out the session at a new all-time high. For investors of the $250 billion online payments giant however, this isn’t anything unusual. They’ve grown accustomed to PayPal leading from the front and even before COVID shares were trading hands at all-time highs. Since the darker days of Q1 where even PayPal wasn’t immune from a bout of selling, the stock has tacked on an impressive 160% and is showing no signs of slowing down.
As Wall Street saw the accelerating shift to e-commerce shopping in the wake of the pandemic, PayPal’s hype increased as did investors’ expectations. The internal numbers so far have been good enough to justify both. Last quarter’s earnings report had revenue up 22% year on year and well ahead of expectations. With Q3 numbers due in the next few weeks, Wall Street will be expecting another big beat to help drive the next stage of the rally. There are plenty of voices on the sell-side who think they’ll have no problem doing so.
E-commerce Is The ‘It’ Business
For example, late last month, Loop Capital were out with an upgrade to PayPal shares, moving them to a Buy. In a note to clients they summed up the drivers behind the decision; "we view this high-growth payment group more favorably than the acquirer space, leaning into a multi-faceted opportunity set across consumers and merchants.”
In addition, they singled out e-commerce as “the ‘it’ business in the payments space,” before adding that even before the crisis began, e-commerce and mobile were expected to be a tailwind for payments companies. We looked for robust growth in both areas, making up an increasingly larger portion of retail sales and providing a growing revenue opportunity for payment processors."
The unyielding growth in the e-commerce industry is what has underpinned PayPal’s success to date and what will continue to drive it going forward. This pandemic has in many ways acted as a retail meteorite, killing off the dinosaurs and allowing evolution to do its thing. We’re probably never going to see consumer trends revert to what they were like pre-COVID, as many who have gotten their first taste of online shopping in recent months now know just how easy it is. As an agnostic player in that space, and one that is needed and used by the e-commerce companies, PayPal is perfectly positioned to own a slice of the growth.
Market Leaders
By market cap it’s at least 3x bigger than its closest competitor, Square (NYSE:SQ), and has become the digital payment provider that all others are judged against. PayPal management hasn’t slowed down either. Through their acquisition of payment processor Braintree they own Venmo, the hugely popular peer-to-peer cash transfer app.
And only this week they announced a new service that will allow users to buy and sell cryptocurrencies directly from their PayPal account; a move that sparked a rally in both PayPal shares and Bitcoin.
There aren’t many companies of PayPal’s size that can boast of their market position and market share. It makes sense that shares have rallied as they have in the past six months and there’s every reason to think they’ll be able to repeat that in the next six months and beyond.
