PayPal (PYPL) sees more tailwinds from digital shift: Can stock offer good returns?

PayPal Holdings, Inc. (NASDAQ: PYPL) last year surprised the market by launching cryptocurrency transactions on its platform, in a move that is seen as an endorsement of digital currencies. Thriving on the rapid adoption of cashless payment systems amid COVID-related restrictions, the payment service provider is busy broadening its portfolio to better serve the growing customer base.

A Promising Stock

PayPal’s stock hit a record high in early February when its impressive quarterly report triggered a rally, but retreated to the pre-peak levels in the following weeks. However, it has great growth potential in a market that is rapidly embracing digital payment solutions — which is considered a secular growth trend. Despite the seemingly high valuation, the stock is a reliable investment option that can fetch decent returns. It is probably on the way to return to its recent peak.

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Read management/analysts’ comments on PayPal’s Q1 report

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While PayPal has dominated the payment processing market in recent years, competition is growing and it faces the risk of losing market share to peers like Square, Inc. (NYSE: SQ). However, the company’s extensive network of merchants and customers gives it an edge.

Crypto Push

The management looks to enhance customer engagement by bringing more innovation to the digital wallet and merchant e-commerce platform. The cryptocurrency trading service, which allows clients to buy and sell Bitcoin, should help PayPal boost transaction volumes going forward. In a move aimed at ramping its crypto prowess, the company recently acquired Curv, a provider of digital asset security technology. Meanwhile, there are unconfirmed reports that PayPal is mulling the launch of its own stablecoin.

For the full year 2021 based on our record first-quarter performance and sustained momentum, we are raising our net new active TPV revenue and earnings outlook. Relative to our prior expectations eBay’s managed payments transition has accelerated and we now expect a greater percentage of the migration to be complete by the end of the third quarter. This acceleration puts more near-term pressure on our revenue and earnings growth. At the same time, this more compressed timing allows for a cleaner exit in 2021. Broad-based strength in our Merchant Services business and improving credit performance allows us to more than offset this impact.

Dan Schulman, chief executive officer of PayPal

Record Quarter

The company has maintained stable growth over the years, delivering financial performance that mostly topped expectations. Net profit climbed to $1.22 per share in the March quarter as payment volumes grew sharply. There was a 31% surge in revenues to about $6 billion. It had 392 million active customers at the end of the quarter. The results, which also benefited from the government’s stimulus, exceeded the market’s projection. It was the best quarter in terms of financial performance, which prompted the management to raise the full-year outlook.

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Square fourth quarter 2020 earnings call transcript

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PYPL is one of the fast-growing stocks that was relatively less affected by the virus crisis. The shares, which reached an all-time high a few months ago and drove up the company’s market cap to $300 billion, are currently trading well above their 52-week average. The stock has gained 23% in the past six months.