The increase in online shopping over the past decade has led to an increase in digital payments. And consumers increasingly want convenience, speed and security when it comes to their payment options. The pandemic has only accelerated this behavior.
A smart way to invest in this trend is to buy stocks of PayPal funds (NASDAQ: PYPL). The booming $ 300 billion fintech leader is an exceptional company to own right now.
How does PayPal make money?
PayPal’s business model is fairly straightforward: the company charges transaction fees on payments that pass through its network. For the past 12 months, the total payment volume (TPV) of $ 1.1 trillion generated revenue of $ 23.8 billion. This means that PayPal’s acceptance rate (revenue divided by payment volume) was 2.1% during this time. The main goal of management, unsurprisingly, is to increase the number and amount of transactions processed by the company. Net income and free movement of capital The generation (FCF) will follow.
For individuals, the company offers services like Venmo, its popular peer-to-peer platform that also allows users to purchase cryptocurrencies. And the flagship PayPal mobile app, which recently received a huge upgrade, includes features like buy now, pay later (BNPL), bill payment, early direct deposit, purchase offers and access to a high yield savings account.
PayPal enables merchants to accept digital and mobile payments with Braintree, and iZettle offers a software and card acceptance solution to record, manage, and analyze sales. These business customers can also turn to PayPal to receive working capital loans to help them with their day-to-day operations.
PayPal’s proven ability to deliver a full suite of financial services to consumers and businesses, while delivering exceptional quarterly financial metrics like 18.1% operating margin and 17.6% FCF margin, explains why the title crushed the S&P 500 since its return to public markets in July 2015.
What are the competitive advantages of PayPal?
As a two-way platform with 371 million active consumer accounts and 32 million active merchant accounts, PayPal’s largest platform competitive advantage just had a network effect. If I run an e-commerce site, I want the payment service to give me access to the largest base of potential customers. And if I’m an individual shopper, I’ll only consider using a widely accepted app wherever I go. The value of the overall network clearly increases with additional users.
PayPal also has powerful intangibles or features that are virtually impossible for competitors to copy. The PayPal brand is widely recognized as a safe and secure means of payment in over 200 markets (and 25 currencies) around the world. And since its founding over 20 years ago, the company has developed expertise in digital payments as one of the pioneers in the space. Finally, because PayPal is so vital to the daily financial lives of its users, it has the rare ability to keep introducing new features in order to generate higher levels of engagement (and revenue) over time. This option is extremely valuable.
It’s no wonder that management has raised its guidance for the year 2021 across the board, expecting higher growth of POS (33% to 35%), revenue (20%) and profits. (21%) compared to 2020. And Wall Street is also optimistic. , as the stock’s consensus rating is a solid buy with more than 35% rise over the next 12 months at recent prices.
Adding a stock like PayPal is a smart move for any investor.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.Source link