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Here's Why PayPal Is Such a Remarkable Fintech Company

By Matthew Frankel, CFP® – Nov 6, 2021 at 6:22AM

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You might be surprised just how large PayPal's business has become.

PayPal (PYPL 1.26%) is still best known for being the way to pay for things online, but many investors don't realize just how enormous the company has become. In this Fool Live video clip, recorded on Oct. 21, Fool.com contributor Matt Frankel gives an overview of where PayPal's business stands today.

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Matt Frankel: I'll give you an overview of what PayPal does real quick. Everyone knows what they do, they're a payment processor. They have grown tremendously. They're are a big company, almost a $300 billion market cap, they're roughly eight times the size of Pinterest (PINS 1.40%). This is definitely a manageable acquisition for them. It's not even as dilutive as say Square (SQ 3.25%) acquiring Afterpay in stock. They have 403 million active users. Those active users make 4.7 billion transactions, individual purchases on PayPal's platform every quarter.

In the second quarter, PayPal's payment volume was $1.2 trillion on an annualized basis. There's over $1 trillion flowing through PayPal's ecosystem. Venmo is the biggest growth area of the business, I give Venmo payments all the time. We own a vacation rental, and when friends stay there, sometimes they'll Venmo me for some of the cost. That's growing really rapidly, but it's still a pretty small part of PayPal's business, $58 billion out of $311 billion in payment volume in the second quarter.

Growth is still very, very good. The pandemic accelerated the digital payments transformation, which is why PayPal's payment volume grew 40% year over year in the last quarter. Unlike a lot of these big fintech companies, PayPal is consistently profitable. PayPal is expected to generate about $5 billion in free cash flow this year alone. Most acquisitions PayPal has made have been in cash and without taking out debt because the company is generating money that it's using to acquire businesses. Honey is the big recent example, the discount shopping platform. That's the basics of the business. It started out as a subsidiary of eBay (EBAY -0.33%) not that long ago. Now eBay is down to just 4% of PayPal's revenue. A lot of big catalysts in PayPal's business.

Matthew Frankel, CFP® owns shares of Pinterest and Square. The Motley Fool owns shares of and recommends PayPal Holdings, Pinterest, and Square. The Motley Fool recommends eBay and recommends the following options: long January 2022 $75 calls on PayPal Holdings and short October 2021 $70 calls on eBay. The Motley Fool has a disclosure policy.

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