PayPal Holdings ($PayPal(PYPL)$) is the IBD Stock of the Day as the e-commerce firm continues its rebound from a July-quarter earnings sell-off and retakes its 50-day moving average. PayPal stock has forged an early entry point as analysts shrug off former parent eBay's ($eBay(EBAY)$) switch to another payment processor.
Looking beyond the eBay issue, some analysts expect upside for PYPL stock from Venmo, PayPal's money-transfer service for family and friends. Also, PayPal plans to release its new "super app" digital wallet in the back half of 2021.
And, bullish analysts expect PayPal to gain traction with in-store payments. The e-commerce firm has thrived as an online checkout option for consumers.
Still, PayPal stock pulled back for three days following its second-quarter earnings release on July 28. PYPL stock missed revenue estimates amid eBay's switch to Adyen as the payment processor for its online marketplace.
EBay spun off PayPal in 2015. PayPal management expects eBay to represent less than 3% of total payment volume and revenues by the end of 2021. So the headwind for PYPL stock should be over as new catalysts kick in.
PayPal Stock On IBD Leaderboard
The official entry point for PayPal stock is 310.26 out of a flat base that it is currently forming. That's a bit more than its all-time intraday high 310.16, set on July 26 this year.
But PayPal stock has climbed above its 50-day moving average, providing an early entry point of 290.38. Shares gained 1.4% to close at 293.26 on the stock market today.
Amid the growth in online shopping spurred by the global Covid-19 pandemic, PayPal stock popped 117% in 2020. PYPL stock has gained 24% this year.
With that performance, PayPal stock belongs to the IBD Leaderboard. The Leaderboard is IBD's curated list of leading stocks that stand out on technical and fundamental metrics.
PYPL Stock A Long-Term Leader
Also, PYPL stock is a Long-Term Leader.
PayPal stock holds a Composite Rating of 93 out of a best-possible 99, according to IBD Stock Checkup. IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
San Jose, Calif.-based PayPal has been adding consumer financial services to its digital wallet as it competes with Square ($Square(SQ)$) and others.
PayPal aims to build a super app that offers high-yield savings accounts, cryptocurrency purchases, personalized shopping perks and "buy now, pay later" services or BNPL. PayPal does not expect BNPL to be a big moneymaker on a stand-alone basis.
In the July earnings report, PayPal said it had 403 million active accounts worldwide. By 2025, PayPal stock aims to reach 750 million worldwide active users.
Venmo Growth Forecast For PayPal
In addition, Venmo now has 76 million users. PayPal has also been adding features to the Venmo service, aiming to increase average user revenue.
At Bank of America, analyst Jason Kupferberg in an Aug. 30 report estimated that Venmo could reach 120 million users in 2023, with average monthly revenue doubling to $20. That would be a boost for PayPal stock.
"This would imply total Venmo revenues of $2.4 billion in 2023 (6% of total revenue) versus vs. the expected $900 million in 2021," said Kupferberg.
Then, there's PayPal's move into in-store commerce through alliances with CVS ($CVS Health(CVS)$) and others. Susquehanna Financial estimates that in-store transactions could account for 16% of PayPal's total payment volume in five years.
In addition, PayPal expects to grow revenue from new partnerships in China and Latin America. In 2020, PayPal acquired a 70% stake in China's GoPay. PayPal also holds a stake in Latin American e-commerce firm Mercado Libre ($MercadoLibre(MELI)$).
PayPal recently hiked transaction fees for some merchant services. That could help offset the loss of eBay's business.
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