The world is moving away from cash and toward digital payments, and PayPal Holdings' (PYPL -0.27%) share price has been rising in the process. The stock has ridden this consumer sea change to a more than 200% gain from November 2017 to July 2019, as compared with the S&P 500's gain of 35%.
Second-quarter earnings showed lower full-year revenue than had been forecast ($4.32 billion actual, vs. $4.33 billion predicted), and the stock price fell 15% on the news. Management blamed a delay in the launch of new services with strategic partners for the decline. Currency exchange effects have also played a significant negative role.
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You can get an easy read on PayPal's health by looking at just a few metrics, all of which were up year-over-year: payment transactions (up 9.2%), active accounts (17.2%), total payment volume (23.6%), and engagement, or the number of app downloads (27.8%).
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So is now the right time to buy?
If you're a long-term investor, you can be rest assured that PayPal is a stable business and that its stock price will rise over the long term. One of the main drivers for the company has been Venmo, a peer-to-peer payments app that's highly popular with young adults. Venmo, which offers an easy way to transfer money with a Facebook-like feed, enjoyed torrid growth in the second quarter, with a total payment increase of 70% year over year to $24 billion. That said, Venmo is not yet profitable, as PayPal is just beginning to monetize the platform. It does provide a very strong user base, which is a path to future growth.
The balance sheet shows $1.04 billion in free cash flow and $10.7 billion in cash and investments, two of which include $500 million in Uber Technologies (UBER -2.95%) and $750 million in a partnership with Latin American company MercadoLibre (MELI -0.00%). Both of these partnerships work in PayPal's favor by providing access to more than 300 million users across 60 countries. However, Uber's inability to make money cost PayPal $228 million in the quarter (a drop of 34%). The value of the MercadoLibre investment dropped 10%.
PayPal's long-term fundamentals are intact, and there is huge room for growth. This short-term dip in price -- mostly due to temporary factors -- looks like a good opportunity for investors. In terms of financial performance, growth, and users, the business remains as strong as ever, with a gross profit margin of 45.1%, operating margin of 14.1%, and net profit margin of 15.4%. Over the next year, analysts expect the stock to move to $128 from its current $102.
PayPal will continue to benefit from the rise in online shopping, with impressive increases in the number of transactions and new accounts just over the past year. Competitive forces may move the stock price from moment to moment, but over the long term its future looks clear.
