With a stock price that has absolutely crushed the market over the past few years, PayPal Holdings (PYPL 0.64%) is a business that's benefiting from the broad secular shift away from cash-based transactions. The company processed a whopping $1.1 trillion in payment volume over the past 12 months, and there are now an incredible 403 million active accounts using PayPal's services.
This leading fintech platform just released some significant updates to its consumer app, and that's investors have plenty to cheer about. Read on to see if PayPal is a millionaire-maker stock.
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A new and improved financial sidekick
On Sept. 21, CEO Dan Shulman announced some highly anticipated upgrades to PayPal's mobile app:
We're excited to introduce the first version of the new PayPal app, a one-stop destination for our customers to take charge of their everyday financial lives, with new features like access to high yield savings, in-app shopping tools for customers to find deals and earn cash back rewards, early access Direct Deposit, and bill pay.
These upgrades are in addition to existing capabilities, like sending money to friends, making purchases with the buy now, pay later option, and paying for purchases with crypto.
As it stands today, PayPal has 371 million active consumer accounts. But Schulman isn't satisfied with this number. He wants the business to one day count 1 billion daily users, a huge jump from where things are today. The added features PayPal just revealed will certainly help achieve that lofty goal as people will start to view the app as a complete financial services tool.
It's worth pointing out that PayPal is technically not a bank; it relies on third-party financial institutions to handle the behind-the-scenes banking-related activities. For example, the savings account, called PayPal Savings, will be offered by Synchrony Financial. The advantage with this strategy is that PayPal can focus its attention on gaining users and providing an easy-to-use consumer experience, while at the same time avoiding the onerous regulatory and compliance requirements needed to operate a bank. Synchrony, on the other hand, gets access to a wider audience which it wouldn't be able to reach otherwise. It's a win-win situation for both parties.
It's also expected that PayPal will introduce stock market investing into the app in the near future, pitting it against a younger (but popular) service like Robinhood Markets. Although PayPal will certainly be late to the brokerage party, its massive existing user base trumps Robinhood's 21 million active accounts.
By 2025, the number of people who use digital wallets is expected to reach 4.4 billion globally. And PayPal's recent initiatives, which emphasize simplicity and security, underscore the company's goal to be the main beneficiary of this push.
Is the stock a buy today?
PayPal's stock has been a longtime winner for shareholders, soaring more than sevenfold since June of 2015. I think the streak of outperformance, however, is far from over.
First of all, the mobile app's enhancements are a perfect example of the optionality embedded in the business model, where the company can continually add more features in order to drive customer growth and higher engagement. PayPal says that the average account processed 43.5 transactions over the past 12 months. Expect that figure to steadily march higher over time as customers' propensity to use PayPal for all their needs rises.
And PayPal possesses stellar financial metrics. During the second quarter, the business produced a non-generally accepted accounting principles (GAAP) operating margin and net income margin of 26.5% and 21.8%, respectively. Additionally, only 4% of revenue is needed to invest in growth in any given year, so PayPal is able to return capital back to investors while still expanding at a rapid pace. So far in 2021, $1.5 billion of share repurchases have been executed.
As you can see, PayPal is clearly an outstanding company. The ability and willingness to keep pushing the needle in the pursuit of becoming a single, comprehensive financial tool for its users will propel the business over the next several years. Rejuvenating the mobile app is a perfect example of this strategy.
The growth this company continues to generate means that buying PayPal stock now and holding for the long term could put you on the path to becoming a millionaire.
