PayPal's Epic Success Continues With Crypto

PayPal's Epic Success Continues With Crypto

When we say long-term investments, we think of transactions with lower risk in the long run and earnings higher than savings or rent, but with no extraordinary profits. Still, we keep hoping to run into some stock that will make us spectacular returns. Sometimes, this happens with already established highest quality companies, like PayPal Holdings, IncPYPL whose share price has increased incredible 569% over the last five years.

To additionally spice this ride, the stock started this year at around USD $232, and the current trading price is USD $289, which represents a gain of almost 25%. Over the past decade, there have been several great opportunities with high gains like this. Some of the examples are Netflix NFLX, Amazon AMZN, Apple AAPL, along with many more.

Is This Gain A True Increase In Value Of The Company?

It is common knowledge that the share price does not necessarily reflect the value of the company. Warren Buffett explained this in his essay "The Superinvestors of Graham-and-Doddsville". PayPal, the largest platform for money transfer services, is a good example. The company's annual average increase in the share price was 46%, while the achieved average growth of the company's earnings per share was 29%. Therefore, we must conclude that the investors valued the company higher than the achieved results.

Last Quarter's Earnings

In Q1 2021, PayPal exceeded the expected revenues of $5.90 billion and achieved $ 6.03 billion. Also, the expected total payment volume of $265 billion was beaten by 7.5%. That reflected the company's adjusted earnings, so the expected $1.01 per share was topped with $1.22. The new earnings report is expected by the end of July, with the expected earnings per share of $0.83.

PayPal's Entry Into The Cryptocurrency Arena

As other big names in the financial world, like Visa V and Mastercard Incorporated MA, initiated their participation in the crypto world, at least through "crypto reward" program credit cards, PayPal could not afford to stay behind. It was the right choice as PayPal's value more than doubled in 2020, and its stock gained 23% during the first half of the year.

Through its peer-to-peer service Venmo, which is used by more than 70 million users, PayPal offered its customers to operate their cryptocurrencies through its digital wallets, and that pleased both the consumers and millions of merchants. Venmo is on track to bring $900 million to this year's revenue table. Although that's less than 4% of PayPal's business, the ability to pay using cryptocurrency should act as a huge catalyst for growth in 2022. The company's CEO recognized cryptocurrencies as the key growth instruments. PayPal's main competition in this area is Square, Inc. SQ and its Cash App, which also evolved into a true financial app that supports transactions in bitcoin, without any fees. The digital payment processor sees a major opportunity ahead regarding the adoption of an app that posted $51 billion in payments last quarter, marking a YoY increase of 63%.

New Features Done Right

PayPal has been investing heavily in technology, more precisely $2.6 billion in 2020 alone, to develop new features for its growing base of active users. It plans to roll out our next-generation digital wallet in Q3, an "all-in-one personalized app" that will offer customized and unique shopping features, financial services, and new payment experiences.

What's most impressive about PayPal's recent business performance is the improvement in its operating margin. What is truly remarkable is that PayPal managed to roll out so many new features, with more on the way, without compromising its profitability. Moreover, it has been posting healthy increases its margins and profit. This is the definition of ‘a job well done' so no wonder that investors are pleased.

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