PayPal (PYPL 3.37%) is a financial services behemoth, with a lot of investor excitement ahead. Net payment volume is accelerating 25% YOY and user accounts are multiplying rapidly, Third-quarter earnings confirm, the company has the muscle to report double-digit revenue growth year after year.
Recent acquisitions and strategic investments demonstrate PayPal is laying the groundwork for the next stage of its empire. The company aims to be a complete financial services provider, on a global scale, from the beginning of the shopping journey to the end.
Image Source: Getty Images
Aggressive global momentum
PayPal is a nimble tech giant. No marketplace or operating system binds the company to any single partner. Targeted global partnerships have expanded company interests and delivered exceptional financial performance.
Each new investment for PayPal adds another exciting piece of technology, along with millions of customer and merchant accounts. The company has positioned itself to take full advantage of the complicated global financial landscape. PayPal actively searches for unique technologies through PayPal Ventures to augment the business's strategic advantages.
- Braintree, an online payment gateway for merchants, was acquired in 2013 for $800 million. The deal included Venmo, for $26.2 million, which has become one of the world's dominant peer to peer payments platforms.
- PayPal acquired Xoom Corporation in 2015 for approximately $890 million. The purchase was significant, it gives PayPal an entry into the $700 billion global remittance market.
- iZettle, purchased in 2018 for $2.1 billion, gives PayPal cutting edge e-commerce tools across Europe and Latin America.
- PayPal's 2019 investment of $750 million into MercadoLibre (MELI 2.20%) gives the firm a foothold in Latin America, and a combined 500 million users create enormous consumer clout. One month later, an investment of $500 million in Uber (UBER 1.39%) gave PayPal a seat beside 75 million enthusiastic riders.
Growth by acquisition is a strategy practiced by thousands of companies, who seek buy smaller firms that add synergistic value and augment the company's long-term strategy.
PayPal has been masterful with its purchases and each investment has been cleverly calculated. More buying is on the way. Dan Schulman, CEO of PayPal, "we have a healthy balance sheet, and we are ready to put it to work to buy more companies."
Two recent transactions give PayPal a solid competitive lead going into 2020.
An unprecedented Chinese payments opportunity
PayPal gained entry into the vast China market when Peoples Bank of China licensed its 70% stake in Guofubao Information Technology or GoPay. The transaction is a major coup for the San Jose financial titan, making it the first foreign firm to gain licensure to operate a payment platform in China.
Opportunities for PayPal are monstrous! A report from Frost and Sullivan estimates that the mobile payments market in China will approach $96 trillion by 2023 and that users will increase to 956 million. PayPal can expect plenty of competition from tech giants Alibaba's (BABA 1.57%) Alipay and Tencent's (TCEHY 4.62%) WeChat and QQ Wallet.
China is the largest e-commerce market in the world, accounting for 50% of total transactions. eMarketer predicts e-commerce sales to increase by 27.3% to $1,935 trillion by the end of 2019. China's digital consumers will grow to 634 million by the end of 2020. Again, Alibaba is the unquestioned e-commerce leader in China, claiming 55.9% market share while JD.com (JD 1.09%) controls 16.7% of the market.
PayPal will be a formidable competitor once it has fully developed its resources and regulatory issues have been cleared away. The company's broad suite of digital payment tools fit in flawlessly for Chinese consumers who embrace technology.
Honey: Integrating discounts and payments
In 2012, Ryan Hudson was a struggling dad. He was in a coupon mindset when he ordered a pizza for the kids, doing his best to save the all-important $1. In November, PayPal spent $4 billion in an all-cash deal to buy his company, its largest acquisition to date. It is PayPal's first purchase outside its core platform technologies.
Dan Schulman, CEO of PayPal, has said that the purchase of Honey, will be "one of the most transformative acquisitions in PayPal's history." Hudson said the key to success was recognizing the software is equally beneficial to consumers and merchants. This structural quality is ultimately why PayPal made the deal.
Image Source: PayPal Honey Acquisition Investor Presentation
Honey Science is an extraordinary technology. The browser extension is used for detecting lower prices across the company's 30,000 online retailers. 17 million users are fiercely devoted.
The millennial demographic is leading the way into the use of digital coupons and price tracking. Deal hunters and digital discounts are part of online life. PayPal's global scale combined with Honey's distinctive technology offers bargain tracking built into a payment platform, unlike other available payment platforms.
PayPal constantly battles fears of new innovative technologies, regional players, or big tech grabbing market share. With a three-year stock price performance of 168%, the company delivers like clockwork!
