PayPal (PayPal Stock Quote, Chart, News, Analysts, Financials NASDAQ:PYPL) did amazingly during year one of the pandemic, and while the opening up of economies will mean more shoppers entering bricks and mortar stores rather than pointing and clicking, the e-commerce trend is here to stay, which makes plays like PayPal a no-brainer going forward, according to Barry Schwartz of Baskin Wealth Management.
“A few years ago, my wife started paying for school lunches and stuff using PayPal, and it never really caught on to me, and I think it’s because in Canada PayPal is not as big as it is in the US because here we use email check bank transfers,” said Schwartz, chief investment officer at Baskin Wealth, who spoke on BNN Bloomberg last Thursday.
“But in the US, PayPal and Venmo are huge. There’s close to 400 million users of PayPal products and services,” he said.
Online payments company PayPal delivered its fourth quarter and full-year 2020 results back in early February, where it showed just how robust its business is. The company processed a record $936 billion in payments over the year, with its fourth quarter showing payments up a whopping 39 per cent from a year earlier.
“At the beginning of the pandemic, consumers amid lockdown had no choice but to do all of their shopping online,” said CEO Dan Schulman in the company’s fourth quarter earnings call. “Today, the vast majority of consumers state that post pandemic, they will continue to shop online at their current elevated levels because it is more convenient, easier and saves time.”
Revenue for 2020 grew by 22 per cent to $21.45 billion, while earnings came in at $5.39 billion on a non-GAAP basis, up 30 per cent, with EPS at $1.08 per share. Analysts had been expecting $1.00 per share. (All figures in US dollars.)
“In this historic year, we released more products than ever before and have dramatically scaled our acceptance worldwide, giving our 377 million consumer and merchant accounts even more reasons to use our platform,” said Schulman in the Q4 press release.
PayPal’s share price spiked on the Q4 and full-year release, taking the stock to the $300 mark, although the wider pullback on tech has since dropped it down to around $250. That’s still an amazing run for a stock that pre-pandemic was trading around $120 and miles ahead of, say, Visa, which finished 2020 up 16 per cent compared to PYPL’s 2020 return of 117 per cent.
But Schwartz thinks there’s further upside to PayPal and has nominated the stock as one of his top picks for the next 12 months.
“They had an investor day a few weeks ago where they said, ‘We hope to get by 2025 to 750 million PLUS users, and we think we’re going to be a member of the 20/20 club, which is 20 per cent compound revenue growth and 20 per cent compound earnings growth,” Schwartz said.
“At that point, they will be gushing cash,” he said. “We think earnings can triple over the next few years.”
The payments field has gotten a lot more crowded over the years, going beyond the Visas and Mastercards to Google Pay and Apple Pay and to processing platforms like Stripe and Square. PayPal has diversified its product offerings, with mobile-focused Venmo, its PayPal Credit service and payout platform Hyperwallet.
Last week, PayPal said its will start allowing US users to pay for e-commerce purchases with cryptocurrency from their PayPal digital wallets.
“As the use of digital payments and digital currencies accelerates, the introduction of Checkout with Crypto continues our focus on driving mainstream adoption of cryptocurrencies, while continuing to offer PayPal customers choice and flexibility in the ways they can pay using the PayPal wallet,” said Schulman in a press release.
Schwartz said with the further adoption of online commerce, PayPal could be reaching must-have status for businesses.
“As more people adopt it services, it creates the network effect and that means you have to get PayPal. And as it adds more services and more products I think it’s just going to be a phenomenal investment for our client, and it has inflation protection,” Schwartz said.
“It’s very similar to a Visa — if you’re betting like we are on digital payments and more e-commerce and online shopping, then I think you have to own PayPal and Visa,” he said.
With its fourth quarter report, PayPal offered 2021 guidance, calling for its Total Payment Volume to grow by the high 20s in terms of percentage and for the company to add about 50 million active users in 2021. The company said revenue is expected to grow at about 19 per cent to about $25.5 billion, while earnings per share should be about $3.20 compared to $3.54 in 2020.
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