PayPal (NASDAQ: PYPL) has been in a steady growth mode since it separated from eBay Inc (NASDAQ: EBAY) in July 2015. It quickly proved that it can successfully operate as an independent business it once was before eBay acquired it in 2003. Equally loved and hated by its users, the company continues to benefit from being one of the first online payment providers that quickly became a household name.
In general, market analysts are either bullish or neutral about PayPal’s stock. In Q2 2020, the company showed its record performance ever. Daily active accounts grew by 37%, which resulted in 25% increase in revenue. The company is also sitting on $2.2 billion of free cash flow.
Up until Q1 2020, PayPal was very consistent with its growth trajectory recently. Its Year on Year growth was averaging 16.4% over the last 5 quarters, however Q2 2020 smashed all the averages and arrived with 26% increase.
The company benefited a lot from COVID-19 pandemic and almost instant shift from brick and mortar retailers to internet rivals. More people than ever bought products and services online, giving PayPal a cut every time a transaction was completed.
As much as its YoY growth is expected and it does not surprise anyone, the same can be said about its innovation. The company has been riding on its early market entry benefit ever since eBay acquired the company and it became its main payment provider. Blighted with never ending complaints from small businesses using eBay and another platform, it has still managed to carry on unscathed.
While PayPal is in a strong position, it is not an unmovable position. Shopify (NYSE: SHOP), the Canadian e-commerce giant, is just one of many that either creating their own payment solutions or switching to those offering wider range of options to the vendors or the shoppers as well.
While Wall Street remains upbeat about PayPal and its rising stock price, any COVID-19 related growth should be taken with extreme caution. Growing competition from what looks like never ending supply of payment providers, fluid economic situation and potential short-med term downturn can kick the company down the hill. Its stock price grew by nearly 100% since April 2020. Suddenly, PayPal found itself under tremendous pressure to deliver even higher in the upcoming quarters. It is not hard to see that any missed revenue targets in Q3 and Q4 of this year can quickly adjust its current buoyant position.
PayPal remains a strong long-term investment for those who already invested in its stock. However, new entrants hoping to benefit from its recent success, need to measure the risk carefully. The company is not famous for its ground-breaking innovation; therefore, it is difficult to see what offerings it can produce that would allow it to have never-ending queues of potential customers waiting to use their services.
Rate this article