PayPal Holdings (PYPL 4.20%) and Snap (SNAP 9.19%) are hugely popular among retail investors, ranking among the top 100 widely held stocks on the Robinhood trading platform. Their spectacular growth rates and digital business models draw traders like moths to a flame -- and they both look set for long-term success in the post-pandemic economy.
Let's dig deeper to find out why these are two hot growth stocks to buy right now.
The world is going digital, and mobile payment platform PayPal is set to benefit from this megatrend. The company saw its revenue surge by 21% year over year (to $21.5 billion) as the coronavirus boosted demand for e-commerce and online payments. It can maintain its momentum by pivoting to synergistic opportunities such as cryptocurrency.
According to a report published by Allied Market Research, the $1.48 trillion global mobile payment market will expand at a CAGR of 30.1% to reach $12.06 trillion by 2027. PayPal, which handles 22% of online transactions in the U.S., is a great way to bet on this growth because its massive scale gives it a springboard to launch new features.
In March, PayPal launched "Checkout with Crypto," a feature that allows U.S. customers to convert their cryptocurrency holdings into cash at checkout. This functionality takes advantage of PayPal's widespread acceptance to create an integrated cryptocurrency platform -- something crypto competitors like Coinbase will struggle to replicate because of their smaller footprint in traditional payment processing.
With $21.5 billion in annual revenue and 377 million active accounts as of full-year 2020, PayPal is already massive. But don't expect the expansion to slow down anytime soon. Management projects revenue to grow at a CAGR of 20% to at least $50 billion by 2025.
Snap, the parent company of social media giant Snapchat, is another pandemic winner that can maintain its momentum after the crisis ends. The company is getting closer to profitability and plans to drive continued growth by investing in new opportunities like e-commerce.
Fourth-quarter revenue soared 62% year over year to $911 million, (bringing annual sales to $2.5 billion in 2020). But the company's average revenue per user (ARPU) -- which increased by 33% to $3.44 -- is still low compared to the undisputed king of social media, Facebook, which generated a staggering $32 per user in the period. Snapchat's relatively low APRU is an opportunity for growth, and management is taking impressive steps to boost the number.
CEO Evan Spiegel sees a "tremendous opportunity to innovate" in e-commerce, which synergizes well with Snap's tech-savvy Gen-Z audience. In April, the company acquired the fashion recommendation app Screenshop, which analyzes photos to provide clothing suggestions. This move follows the March acquisition of Fit Analytics, a machine learning platform that helps consumers pick the right clothing size when they shop online. The company may soon integrate both technologies into its Snapchat app.
Snap generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $166 million in the fourth quarter, up from $42 million in the prior-year period. This figure adds back substantial stock-based compensation of $220 million. But Snap looks on track to eventually achieve generally accepted accounting principles (GAAP) profits because of its compelling drivers for growth.
The benefit of synergies
PayPal and Snap are taking advantage of their scale and brand penetration to expand into new industries like cryptocurrency and e-commerce. These growth drivers can help the companies maintain their spectacular growth rates and deliver excellent returns for investors.