Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of PayPal Climbed 12.4% in June

By Royston Yang – Jul 7, 2020 at 8:27AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The online payments company is adding new active accounts at a rapid pace.

What happened

Shares of PayPal (PYPL -3.10%) rose 12.4% in June, according to data provided by S&P Global Market Intelligence.

PayPal's shares have already gone up 57.3% year to date, and have been hitting new all-time highs this year. There are strong tailwinds in the payments industry that are helping to boost the company's growth.

User tapping on "pay" on digital wallet on mobile phone

Image source: Getty Images.

So what

The company reported a stellar set of results for the first quarter of 2020, with net revenue growing 12% year over year to $4.6 billion. Earnings per share remained flat mainly because of increased credit loss reserves due to the COVID-19 pandemic. The business generated significantly higher levels of free cash flow this quarter, at $1.3 billion versus $809 million in the same quarter last year.

On the operational front, a record 10 million net new active accounts were added in the first quarter, while 7.4 million were added in April alone, representing a 135% year-over-year jump. If the users from the Honey acquisition are added in, then it would be 20.2 million net new active accounts added in the quarter. 

The coronavirus pandemic is accelerating the adoption of digital payments, a trend that benefits PayPal. PayPal's research also showed that people turned to reward balances during the pandemic to help them stretch their budgets and purchase necessities such as groceries. The company has a "Pay with Rewards" feature that enables users to shop online using eligible credit card rewards. These rewards can then be converted to a dollar value and used in online purchases. Such a feature should encourage users to swipe their cards more often to utilize this function and offset their spending during these tough times.

Now what

Investors can look forward to continued growth for PayPal as digital adoption takes hold at many companies around the world. There is unconfirmed news swirling around that says PayPal may soon allow the buying and selling of cryptocurrency via a digital wallet within its Venmo app. If this is allowed, it could further boost the payments company's user base as cryptocurrency users flock to the platform to transact.

Royston Yang has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends PayPal Holdings and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.