Payment processing giant PayPal Holdings (NASDAQ 🙂 has had a great run this year so far. Its shares have risen more than 16% in the first two months of 2019, fueled by rising business volumes and the number of users.
The final proof of the strength of its platform came last month when the San Jose, Calif.-based company made a 13% jump in sales in the fourth quarter and predicted a further 16% to 17% increase before 2019.
As the stock grows stronger after each correction in the past 52 weeks and has driven to new record highs, it makes sense that new investors get excited about this fantastic growth game.
PayPal Weekly
Driving on the strength of the cash register
PayPal has followed a smart growth strategy, combined with some valuable acquisitions and strategic steps in the past five years. To counter the growing competition in this very busy space of digital payments, where attackers attack from all sides, PayPal has decided to enter into valuable alliances with the largest credit card issuers, Visa (NYSE 🙂 and Mastercard (NYSE :).
This strategic move in 2016 enabled consumers to seamlessly link their accounts to their credit and debit cards, while giving PayPal access to contactless payment technology.
During this period, PayPal also bought many companies that kept up with the rapidly changing technology. After the very successful acquisition of Venmo in 2014, which became very popular among young users with technology, PayPal bought last year the Swedish small-business platform iZettle for $ 2.2 billion as part of its ambition to expand globally and its presence in brick and mortar stores. Hyperwallet, with which companies can send payments almost anywhere in the world, was another important transaction of the past year.
The biggest success that the future growth for PayPal has unlocked, came from the online checkout button that appears on the websites of sellers. For buyers it is an excellent convenience factor, making it difficult to punch card data and other information for each transaction.
According to an estimate by MoffettNathanson, that feature has become so popular that it alone produces about 85% of PayPal's earnings and attracts 50x the volume of its closest competitor, Amazon Pay. Traders like to have this feature on their websites because the convenience of transactions means more sales for them.
Can the growth continue?
After gaining more than 20% in the past 12 months and more than 180% in the past five years, the PayPal inventory is very close to the 12-month consensus price target of $ 99.88 for analysts . But that does not mean that these shares offer no further value to long-term investors.
The online payment sector has a strong advantage at a time when e-commerce is gaining market share everywhere. That is why analysts continue to forecast strong revenue growth for PayPal, more than 16% in this fiscal year and about 18% in 2020.
Some investors may not like the company's dependence on the cash register volumes. But that risk will disappear as the company's recent acquisitions diversify its revenue base. In the fourth quarter, PayPal added 13.8 million net new active accounts. About 20%, or 2.9 million, came from the acquisitions of Hyperwallet and iZettle.
Bottom Line
PayPal shares may not rise at the pace of the past five years, but the company is still in a growth phase. If you are looking for some notoriety in an important growth sector, PayPal can still offer value to investors with a long investment horizon.
