PayPal
Holdings, Inc. (PYPL) reports earnings after Wednesday’s closing bell, with
Wall Street analysts expecting the digital giant to post earnings per share
(EPS) of $0.75 on the first quarter 2020 revenue of $4.72 billion.
As
more and more fintech companies enter the digital payment space offering
cutting-edge technology and niche services, it might seem like Paypal (NASDAQ:
PYPL) has already seen its day in the sun.
But
as the industry continues to grow, Paypal continues to lead. With the highest
name recognition in digital payments and online merchant services, Paypal keeps
upping its technology and making key acquisitions that keep it ahead of the
pack. Does it have what it takes to stay at the head of the pack?
Multiple revenue streams to tap into:
One
of PayPal’s strengths is that it operates several growing revenue streams
instead of relying on one simple business. For instance, it has incredible
brand recognition in digital payment services, but it also makes money as a
payment processor for businesses that need help handling credit card payments.
Expanding its reach through acquisition:
Paypal’s
fourth quarter, which ended before the worst of the COVID-19 pandemic hit,
showed high increases in sales and customer engagement, with 18%
currency-neutral revenue growth and a 10% increase in transactions per active
customer accounts. PayPal reported that transactions grew by double-digits for
the first time this year. Non-GAAP earnings per share rose 24% to $0.86.
It’s
important to note that the increases are not organic; much of it comes from the
acquisitions of Venmo and Braintree (which offer similar services to PayPal),
Venmo in peer-to-peer payments, and Braintree on the merchant side.
However,
PayPal is letting on that it has lots of tricks up its sleeve to keep the
growth going. One of those is mobile, a growing source of engagement
representing 44% of total payment volume.
Going to new places:
In
acquiring Honey, which it did in November 2019, PayPal is opening up new
opportunities in digital commerce that position the company to do much more
than payment processing and maintain its record of double-digit growth. Honey
is an app that scours the internet for coupon codes and applies them at
checkout. This adds value for PayPal customers, encouraging them to complete
checkouts and giving them an incentive to complete the transactions using
PayPal instead of another pathway, like a credit card.
It
also recently acquired GoPay, a Chinese online payment provider, to benefit
from transactions in China, the first payment provider licensed to do so in
that country. And it has developed relationships with banks and other online
shopping destinations to offer easy payment options for customers.
High valuation, but still room for growth:
Unlike
many other companies that have been hard-hit by COVID-19, PayPal’s business
isn’t likely to suffer as customers do their shopping online since that’s what
the company is all about. Its model means it makes money in many different
kinds of circumstances, especially because it’s building out different revenue
streams that hedge the company’s risks during different and difficult times.
Because
of its size — it has $13.6 billion in free cash — Payal has tremendous
opportunities that aren’t available to other non-traditional financial
companies, and it’s making good use of that cash via acquisitions and expanding
its product line, partnerships, and revenue base.
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