Introducing PayPal and Venmo as widely accepted payment methods in various establishments has become a convenient and accessible way for customers to make transactions. But what sets PayPal Holdings, Inc. apart from other digital payments companies? Let’s dive into an analysis to understand why PayPal is considered undervalued and poised for long-term exponential growth.
Firstly, the fintech industry is projected to experience significant growth, with estimates indicating a sixfold increase in revenues from $245 billion to $1.5 trillion by 2030. Within this sector, PayPal stands out as a cost-efficient choice for fintech exposure compared to its competitors. Despite recent underperformance in the fintech sector, PayPal has solid fundamentals and promising driving factors that indicate the possibility of long-term compound growth.
One of the key drivers of PayPal’s growth is its Total Payments Volume (TPV), responsible for 92% of its total revenues. PayPal has strategically made acquisitions to fuel TPV growth, allowing access to new technologies, markets, and skills. Notably, the acquisition of Honey, a browser extension that provides digital coupons, increased PayPal’s user base and data assets significantly. Additionally, PayPal’s expansion into emerging markets and introduction of value-added services have contributed to its TPV growth.
Moreover, PayPal is introducing a Venmo Teen account, targeting a younger demographic to further boost its total transaction volume. By focusing on international expansion, PayPal aims to leverage improved margins in international markets to drive growth.
PayPal’s innovation in the Buy Now Pay Later (BNPL) market has been successful, generating significant TPV and merchant adoption. Offering financing options has also increased consumer spending and contributed to payment volume growth.
Comparing PayPal to its competitors, it has a larger international presence and a more diverse range of product offerings, resulting in a larger Total Addressable Market (TAM). Despite underperforming its peers in the past 12 months, PayPal’s strong net income growth and key deals with companies like Uber, Spotify, Microsoft, and Shopify make it a promising investment.
Now, let’s talk valuation. Despite its robust growth potential and a strong track record, PayPal’s stock price has underperformed compared to its TPV growth. This has resulted in a comparatively lower Price-to-Sales (P/S) ratio, which may present an attractive investment opportunity. Considering PayPal’s vast user base, dominant position in the digital payments sector, and potential for revenue growth through cross-selling and new services, a valuation of 7x its sales seems justified.
Based on this valuation, experts anticipate PayPal’s stock price to rise from its current level of around $73 to reach a target of $205 within the next 2 years. While uncertainties always exist in the market, PayPal’s management has shown a strong commitment to growth and international expansion, reinforcing the ‘BUY’ rating for the stock.
PayPal Holdings, Inc. is a leader in the fintech industry, offering innovative, secure, and convenient digital payment solutions. Its strong fundamentals, growing TPV, and strategic initiatives position it for significant long-term growth, making it an appealing investment choice for those seeking exposure to the fintech sector.
