PayPal (PYPL 1.78%) has prospered since its spinoff from eBay. It has grown to a market cap of $133 billion, and its value is more than four times the size of its former parent. This increase has given PayPal stockholders a return of over 200% since then.
However, growing to a $1 trillion market cap by 2030 would mean it needs to double almost three times over the next eight years. Whether PayPal will achieve this feat is unknowable now, but looking more closely at the fintech stock and its growth rate could give stockholders some indication if that is possible.
Image source: Getty Images.
Calculating the possibilities
With its current market cap, PayPal's stock would have to grow at almost 29% per year over the next eight years. At its recent price of around $114 per share, this would imply an average annual increase of approximately 18% since the July 2015 IPO. This would fall short of a rate to get to $1 trillion by the end of the decade.
Still, when compared to last summer's high of $310 per share, PayPal grew at a rate of more than 42% on average in the six years between the return of PayPal and its summer high. Such a growth rate implies that the $1 trillion market value by 2030 is possible.
PayPal's expanding fintech ecosystem
Indeed 2021 brought a trillion-dollar milestone as payment volumes reached $1.3 trillion, 33% higher than year-ago levels. Most of that volume came through its original payment-processing business. However, other apps, such as its Venmo social payments platform, continue to grow in popularity. Venmo now claims more than 83 million users in the U.S. The company also started PayPal Ventures to invest in both fintech and related industries.
Moreover, it continues to add functionality. One way is through Honey, an app that offers discounts from more than 30,000 retailers. Another added feature is a buy now, pay later option, a feature that the majority of consumers in the U.S. and China have used in some form in the past, either from PayPal or a competitor. Such popularity should bode well for this business.
Image source: Statista Global Consumer Survey.
PayPal by the numbers
Such moves have significantly boosted revenue. In 2021, PayPal reported revenue of $25.4 billion, rising 18% from the previous year. Still, net income came in at just under $4.2 billion, falling 2% from year-ago levels. The company earned nearly $1.8 billion in strategic investments in 2020, compared with $163 million in strategic losses in 2021. Nevertheless, net income has risen 72% compared with 2019 levels, indicating the drop in income is likely a one-time anomaly.
The company also forecasts a 15% increase in revenue for 2022. If this forecast holds, it would mean a slight drop compared to 2021 earnings.
Despite continuing double-digit revenue growth, investors tested the bull vs. bear case for PayPal. Its stock suffered as it lost just over half of its value since peaking last summer. Investors have soured on PayPal as its former parent eBay completed its separation from the fintech giant. Stockholders also did not like its emphasis on monetizing the current customer base rather than growing customer counts, even though the company expects accounts to grow by between 15 million and 20 million this year.
Nonetheless, this takes the price-to-earnings ratio down to 32. This is down from 75 last fall but remains a small fraction of Block's earnings multiple, which has returned to levels above 400. This also returns the company to the earnings multiple where it stood back in 2016, indicating that it may have become a comparative bargain.
PayPal in 2030
PayPal faces an uphill battle in making it to a $1 trillion market cap by 2030. Its first six years of growth show the goal is possible. Still, with the recent drop, it lags behind this goal and will need to resume its massive growth to achieve that milestone.
However, PayPal has leveraged its first-mover advantage in fintech to build a recognizable and widely used payments ecosystem. Even if it does not make it to $1 trillion by 2030, PayPal should continue to beat the market for years to come.
