PayPal: New Features Keep Driving the Bull Thesis

PayPal (PYPL) was a prime beneficiary of the pandemic driven pivot to digital payments last year. As the company’s strong 4Q20 results can attest, the trend showed no signs of wavering right until the year’s end.

Profit tripled in the quarter on a year-over-year basis, with net income rising from $507 million in 4Q19 to $1.57 billion, translating to EPS of $1.32 vs. last year’s $0.43. The figure also beat consensus estimates by $0.66.

There was a beat on the top-line, too, with revenue hitting $6.12 billion, coming in ahead of the Street’s forecast by $30 million, and amounting to a year-over-year increase of 23.4%.

The company generated $277 billion in total payment volume (TPV), a 39% year-over-year uptick, despite travel and events volume – which before the pandemic represented roughly 10% of all volume – declining by 50% in FY20.

Looking ahead to 1Q21, at current spot rates, PayPal expects revenue to increase by 28%, higher than the Street’s 22% growth forecast. As for the whole of 2021, PayPal said it is expecting high 20-percent TPV growth while the Street anticipated growth to be in the mid-20s.

So, good news all around. However, the outlook is even rosier, says BTIG analyst Mark Palmer, when you take into consideration the promise shown by PayPal’s latest initiatives.

PayPal launched crypto trading in the U.S. at the start of the quarter, and CEO Dan Schulman noted crypto volume growth had “exceeded management’s projections.”

“While PYPL did not disclose those volumes, Schulman noted that customers who purchased crypto had been logging into the company’s platform at a rate double their login frequency prior to buying crypto,” the 5-star analyst said. “Schulman noted that PYPL intends to enable its ~29mm merchants around the world to use crypto as a funding source later in 1Q21, adding that it planned to expand the initiative to peer-to-peer payment app Venmo and select international markets during 1H21.”

Additionally, the company said its BNPL (buy now pay later) feature, released in 2H20, “represented the best start for any product it has ever released.” PayPal had more than $750 million in volume from ~2.8 million unique customers in the quarter, and the service’s expansion will see PayPal further penetrate what is expected to be a $166 billion global market by 2023.

Accordingly, Palmer reiterated a Buy rating on PYPL shares, and his $300 price target implies ~11% upside from current levels. (To watch Palmer’s track record, click here)

Looking at the consensus breakdown, 1 analyst remains on the sidelines while all 16 other recent reviews say ‘buy.’ PYPL’s Strong Buy consensus rating is backed by a $273.12 average price target, suggesting upside of 8% over the coming months. (See PYPL stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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