Since PayPal Holdings (NASDAQ:PYPL) separated from eBay in 2015, the digital payments leader has been aggressively pursuing a strategy to spread its brand everywhere and make its payment apps the go-to option in the daily lives of its customers.
That approach is fueling results. The company has hit a nice stride over the last few years, with revenue and earnings per share growing at a brisk pace, rewarding shareholders that have bought in to the company's long-term vision of mobile payments.
Despite the recent run and the stock's high valuation, PayPal is nowhere close to reaching its potential. Here are eight reasons why you shouldn't be hesitating to pull the trigger on PayPal stock today.
PayPal is the champion of consistency. It's been posting total payment volume growth consistently above 20% for 15 years. In 2017, PayPal actually saw its revenue growth accelerate to 21%. This is a result of a well-managed company, but it's also a sign of how massive PayPal's addressable market really is.
2. An expanding market opportunity
With more and more people starting to shop online and with their phones, PayPal is operating in a steadily expanding market. On previous conference calls, management has compared its addressable market to the entire $100 trillion global commerce market -- which makes PayPal's trailing-12-month payment volume of $589 billion look like peanuts.
Management has been positioning the business to capture that market opportunity with tack-on acquisitions in recent years. PayPal now operates in bill payment (TIO Networks), cross-border money transfer (Xoom), and peer-to-peer (P2P) payments (Venmo). Essentially, PayPal stands to be at the center of just about every way people use money.
3. Mobile payments is exploding
The number of mobile payment users globally is expected to increase from 721 million in 2017 to over 1.1 billion by 2021, according to eMarketer. It's an absolutely massive market. Just consider China's mobile payments market, which alone generated $12.8 trillion in total transaction value in 2017.
Americans are not using their smartphones for point-of-sale transactions nearly as much, but the U.S. market is beginning to catch up. The total value of point-of-sale transactions in the U.S. is expected to grow almost 400% by 2021 to $190 billion.
4. Peer-to-peer payments is even bigger
There might be even more growth opportunity for Venmo within the P2P payments market, which had an estimated transaction value of $120 billion last year and is expected to reach $244 billion in four years. In the first quarter, Venmo's transaction volume grew 80% year over year and is on pace to generate $50 billion in transaction volume this year.
5. What can PayPal do with $6 billion?
PayPal just closed a deal to sell its credit receivables to Synchrony Financial for $6 billion, providing PayPal a lot of cash to invest in growth by adding new enhancements to its mobile apps and infrastructure, which may come through acquisitions.
Just in the last few months, management has already started to put cash to work, with over $2.7 billion in acquisitions announced since May. These deals span risk management, marketplace payout capabilities, merchant services for small businesses in Latin America and Europe, and retail artificial intelligence to help retailers better predict sales patterns.
It's clear management is on the offensive, beefing up the company in critical areas to be a major player in global commerce.
6. Customer base is still expanding at a rapid rate
A sure sign that PayPal has growing awareness with consumers is its continued solid growth rates in customer accounts. In the first quarter, PayPal's customer base grew 15% year over year to 237 million. That's an acceleration over the prior-year quarter's 11% growth rate.
This is particularly exciting, as management recently indicated that newer customers who join are using their account more frequently than older customers. Over the trailing-12-month period, customers used their account an average of 34.7 times, an increase of 8% year over year. But given higher engagement trends with newer customers, this metric could accelerate, which could cause a slight acceleration in total payment volume growth and, therefore, revenue.
7. Strong ties with retailers
The more customers that use PayPal, the more influence PayPal has to spread its brand through merchants. So far, PayPal has signed up 19 million merchants to its payment platform, which has been accelerating along with PayPal's customer base. Merchant service payment volume grew 30% in the first quarter, and represented 87% of companywide payment volume.
8. PayPal is part of a strong ecosystem
One of the most important takeaways from PayPal's first-quarter conference call was CEO Dan Schulman's explanation of how its partnerships with big banks, credit card companies, and tech leaders are still developing and getting stronger.
He said, "Our financial institution partners are now experiencing firsthand the benefits of our joint efforts. It's exciting to see them actively encouraging their customers to link their accounts to PayPal in order to enrich the digital experiences available to our mutual customers."
Speaking about PayPal's relationship with all of its partners, Schulman got right to the point about what their strategy is all about when he said, "These experiences allow for PayPal to be more present in the everyday lives of our customers, driving engagement as well as introducing millions of potential new customers to the PayPal brand and value proposition."
Being "more present in the everyday lives of our customers" is fundamentally what is driving PayPal's growth, and I expect this to continue for many years given the company has such a huge addressable market to grow into.
The stock trades at a high forward P/E of 36 based on the consensus analyst earnings estimate for 2018, but given the company's past growth and the opportunity still in front of it, shares remain attractive even at that price.