PayPal is now the third largest payment company globally (after Visa and Mastercard). As the leading online checkout button/digital wallet, with 416 million active accounts, including 33 million merchants, available across 75% of the top 1,500 North American and European retailers, the company provides the purest exposure to the secular growth in ecommerce. PayPal is also a key beneficiary of the current dramatic shift in consumer buying habits brought on by the pandemic, as well as the relatively newer consumer-to-consumer payment trends through its Venmo peer-to-peer (P2P) payment service. Pay with Venmo will launch on Amazon this year. PayPal management has guided to at least 50 basis points of annual operating margin improvement over the next several years (we note that Visa and MasterCard at their scale currently have +50% operating margins compared with PYPL’s 24%). Combining the secular growth of eCommerce and P2P payments with operating leverage and the strategic use of the company’s significant and growing cash balance ($20 billion at 3Q), the company will grow earnings at a mid-20% rate over the next five years.
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