From $50 Billion to $120 Billion
I have liked PayPal Holdings Inc (NASDAQ:PYPL) for quite some time. When I wrote about the company back in July 2015, as it was spun off from eBay Inc (NASDAQ:EBAY), PayPal had a market capitalization of around $50.0 billion.
Today, the company’s market capitalization stands at over $125.0 billion. So investors who held PayPal stock over the years have more than doubled their money.
Of course, like most tech stocks, it wasn’t always sunshine and rainbows for PYPL stock. For instance, when PayPal Holdings Inc reported second-quarter results on July 24, its shares took a beating.
In particular, investors weren’t pleased that the company missed Wall Street’s revenue expectation and that management lowered their guidance. (Source: “PayPal stumbles 6% after missing on revenue, slashing full-year outlook,” CNBC, July 24, 2019.)
Now, though, the San Jose, California-based digital payment company is making a comeback. On October 24, PayPal stock surged more than eight percent.
Why? Because the company just released another earnings report.
Why PYPL Stock Is Soaring
PayPal Holdings reported its third-quarter results on October 23 after the closing bell.
During the quarter, the company generated $4.38 billion of revenue. The amount not only represented a 19% increase year-over-year, but also beat Wall Street’s expectation of $4.35 billion. (Source: “PayPal Reports Third Quarter 2019 Results,” PayPal Holdings Inc, October 23, 2019.)
Top-line growth also translated to the bottom line.
In the 2019 third quarter, PayPal’s adjusted earnings came in at $0.61 per share, up five percent from the year-ago period. This turned out to be a nice surprise because analysts expected the company to report adjusted earnings of $0.52 per share.
Growth was across the board. During the quarter, PayPal’s digital payment platform added 9.8 million net new active accounts, bringing the total number of active accounts to 295 million.
There were 3.1 billion payment transactions processed on the platform, a number that’s up 25% from a year ago.
Total payment volume, on the other hand, was a whopping $179.0 billion for the quarter, which represented a 27% increase year-over-year on a currency-neutral basis.
Market participants were also pleased with management’s guidance this time around.
For full-year 2019, PayPal Holdings Inc is expected to grow its revenue by approximately 15% to a range of $17.70 to $17.76 billion.
The company’s adjusted earnings are projected to come in at $3.06 to $3.08 per share for the year, which would mark a sizable improvement from the $2.42 per share earned in 2018.
These numbers really cheered up investors, and PayPal stock jumped immediately in after-hours trading following the release of the earnings report. And the momentum has continued.
PayPal Holdings Inc (NASDAQ:PYPL) Stock Chart
Chart courtesy of StockCharts.com
The best part is, going forward, there are at least two catalysts that could allow investors to keep liking PYPL stock.
The first catalyst is the company’s mobile payment service “Venmo.” Basically, when users sign up for the popular mobile app, they can transfer funds directly to others.
In the third quarter of 2019, Venmo processed more than $27.0 billion of total payment volume, which translated to a growth rate of 64%.
One of the major trends in the tech world right now is that consumers are moving from desktop computers to mobile devices. Through the Venmo app, PayPal Holdings Inc is well positioned to capitalize on this.
The second catalyst is China. Sure, the U.S. and China trade tension is still a cause of uncertainty in the stock market. But PayPal has just made some serious progress toward entering this giant new marketplace.
PayPal has received approval from the People’s Bank of China to acquire a 70% stake in Guofubao Information Technology Co., Ltd., a holder of a payment business license in China. (Source: Ibid.)
The deal is expected to close in the fourth quarter of this year. After that, PayPal would become the first foreign digital payment platform to be licensed to operate in the Chinese market.
“This is a very significant development for us and it has the potential to dramatically expand our total addressable market and our long-term growth prospects,” said PayPal’s President and Chief Executive Officer Dan Schulman. (Source: “PayPal Holdings’ (PYPL) CEO Dan Schulman on Q3 2019 Results – Earnings Call Transcript,” Seeking Alpha, October 23, 2019.)
The license enables us to expand upon our relationships with existing partners like China Union Pay and AliExpress and forge new partnerships with China’s financial institutions and technology platforms, allowing us to provide a comprehensive set of differentiated payment solutions to businesses and consumers in China and globally.
As one of the biggest players in the booming online payment industry, PayPal Holdings Inc already has strong investor appeal.
Given what the company has set out to do in the near future, I wouldn’t be surprised to see PayPal stock making another big move to the upside.
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