Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

How Risky Is PayPal Holdings Stock?

By Jennifer Saibil - Dec 11, 2020 at 6:00AM

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

It's the leader in the field, but there's a lot of new competition.

As far as fintech goes, PayPal Holdings ( PYPL -0.29% ) is a dinosaur. It existed before fintech, or financial technology, was even a category, which means its high-growth stage is probably over. It also means that there are many new companies in the field, threatening PayPal's dominance. Does that mean PayPal is a risky investment at this point?

Driving sales during tough times

First, a little perspective on the advantage of experience.

No one could have known how COVID-19 would ruin economies way back in early 2020. But shifting consumer trends meant that once the pandemic came, businesses were ready. While many small businesses were devastated, companies that were fully on board with the digital revolution were able to continue making sales while stores were closed.

PayPal was a force in processing payments for online businesses while doors were shuttered, and it also had high growth in its peer-to-peer payments category. So much so that total payment volume increased 36% during the third quarter, the highest increase in the company's history, and in October, already into the fourth quarter, PayPal had its highest-volume day ever. Transactions grew 30% to $4 billion, the most transactions ever.

The fintech company has a history of acquiring complementary businesses, such as Venmo and Honey, a recent addition that finds deals for shoppers. It also has strong partnerships with companies that feature it as an easy payment option. And merchants enjoy its range of payment solutions that simplify their operations. These features help it stand out from an increasingly crowded space. 

Man with a credit card on the phone at a computer.

Image source: Getty Images.

Facing increased competition

Everyone seems to be getting onto the fintech bandwagon these days, and traditional financial services such as Visa and American Express have also launched small- business packages for in-store and digital merchants. Square is another innovative fintech that offers a suite of small business solutions and is seeing tremendous growth. Revenue increased 148% in the third quarter.

But Square is nowhere near PayPal's size. PayPal sales in the third quarter were almost double Square's, and PayPal's total payment volume of of nearly $250 billion dwarfs Square's $31.7 billion in seller gross payment volume and $2.9 billion in Cash App GPV.

PayPal has established itself as the leader in the field and continues to launch new products and services to stay ahead. It continued to expand its network during the pandemic, adding millions of new merchants and launching the Venmo credit card. It also launched "buy now, pay later" interest-free payment options and added a cryptocurrency trading feature to the PayPal digital wallet.

Building for the future

CEO Dan Shulman said, "The digitization of the global economy, combined with the rise of digital wallets, will drive our growth over the next decade." In particular, PayPal is expecting exciting progress from the Venmo credit card, which combines the Venmo digital wallet with physical stores through the card's QR code. 

PayPal is expecting revenue to increase 20% to 25% in the fourth quarter and TPV and earnings per share to grow double-digits. These are strong numbers, but they don't match growth from newer start-ups like Square. But PayPal's revenue far exceeds Square's, and sales growth around 20% is healthy for a company its size. That typically means less vigorous stock growth, but lower risk. This explains why Square is up more than 200% year to date and PayPal is up about 100%, which isn't too shabby. But Square trades at 330 times trailing 12- month earnings, while PayPal trades at 81 times earnings. 

PayPal has an established brand and high long-term growth prospects. It faces some competition, but it stands out with its large network and innovative payment solutions. I would say that PayPal is a low-risk stock with the potential for high gains for shareholders.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
$187.24 (-0.29%) $0.55
American Express Company Stock Quote
American Express Company
$157.86 (0.66%) $1.04
Visa Inc. Stock Quote
Visa Inc.
$196.29 (-0.69%) $-1.36
Square, Inc. Stock Quote
Square, Inc.
$212.87 (0.37%) $0.79

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

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