What happened

Shares of PayPal Holdings (NASDAQ:PYPL) rose 12.5% in July, according to data provided by S&P Global Market Intelligence. Former parent company eBay fully separated from the payments giant during the month, but this didn't keep PayPal from reporting strong earnings for the second quarter of 2020 on July 29.

After Q2 earnings, PayPal stock surged to all-time highs. And so far in August, it has kept creeping higher. Shares are up almost 90% in 2020.

PYPL Chart

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So what

eBay spun PayPal off into a separate company in 2015, and up till now the two have done business under an operating agreement. The deal expired in July, and eBay is now free to run full speed ahead with its own payments products. eBay CEO Jamie Iannone said, "We expect it to deliver $2 billion in revenue and $500 million of operating income in 2022."

If any PayPal shareholders were nervous about this, the company's Q2 results likely calmed those nerves. Total payment volume (the amount of money flowing through PayPal's system) increased 29% year over year to $222 billion, resulting in record quarterly revenue of $5.3 billion. And an incredible $2.2 billion reached the bottom line in the form of free cash flow. Simply put, it was PayPal's best quarter ever.

In the earnings call that followed, analysts asked about eBay. PayPal CEO Dan Schulman pointed out that eBay remains one of PayPal's partners, and the two still share loads of mutual customers. But he added that PayPal partners with many other e-commerce companies, like Shopify and Etsy, that are growing at a much faster pace than eBay. The implication is that any lost eBay revenue is more than compensated for by the growth from other e-commerce channels. 

A businessman draws an upward arrow on a stock chart displayed on a transparent touchscreen.

Image source: Getty Images.

Now what

In PayPal's five years as a stand-alone public company, revenue has more than doubled and total payment volume has more than tripled. And it now has around 350 million active accounts. With this scale, PayPal is a mega-cap stock, and investors might question future upside possibilities. 

But PayPal still has long-term opportunity. Larger payments companies process trillions in payment volume, compared to billions for PayPal. Furthermore, growth in e-commerce is expanding the digital payments market overall, providing more volume opportunity for all players.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.