If you're perpetually scanning the market's list of stocks in search of up-and-coming disruptors, you're hardly wasting your time. Amazon was once considered a long shot early in its existence as a public company, as were Nvidia and even Alphabet back when it was just Google.
When it comes to the current up-and-comers, there's a curious growth name within the digital payments space that just might give PayPal Holdings (PYPL -1.97%) a run for its money -- figuratively, and in at least one sense, literally. That growth name is a pseudo-start-up called Paysafe (PSFE -1.78%), which has accomplished a great deal in a very short period of time.
That raises the question: Which of these two stocks is the better buy right now?
Image source: Getty Images.
Let's make some comparisons of PayPal and Paysafe
PayPal doesn't need much in the way of an introduction. It's of course the first big name in the online payment space and is still the industry's gold standard. Maruti Techlabs estimates PayPal accounts for more than 90% of the online shopping arena's payment gateways for card-based purchases. If you're reading this, odds are good you're one of its roughly 400 million users.
If you've never heard of Paysafe, on the other hand, I'm not surprised. While Paysafe has been around since 1996, much of its evolution has only taken shape in the past few years, and it's only been a publicly traded company since March 2021. Moreover, with a market cap of only $2 billion, it doesn't turn a lot of heads.
Don't let its small size and seemingly young age fool you, though. The company's brands have some reach. In 2020, Paysafe helped process $92 billion worth of commerce, collecting $1.5 billion worth of revenue for its efforts. These payments include online and in-store purchases, as well revenue driven by the digital publishers the company serves.
If you think it sounds a lot like PayPal's service, you're right. So, why would the world embrace Paysafe when it's already got a proven product in PayPal, or for that matter, slightly better-known alternatives like Block or much better-known options offered by the likes of Mastercard?
Because Paysafe is small and nimble enough that it's able to custom-build timely solutions that matter right now. Outfits like MasterCard and PayPal aren't in the same position to do so.
Take its involvement in the nascent online gambling industry as an example. Earlier this month Paysafe announced its existing betPARX solution that allows Michigan's bettors to fund legal wagering apps is now going to be offered in Pennsylvania and New Jersey. Also earlier this month it debuted account funding for Ontario's iGaming operators. That news follows the late March notification that Paysafe's relationship with Resorts WorldBET is being expanded; Resorts WorldBET operates a mobile sports-betting app offered in New York. For perspective on how big the online wagering opportunity could be, market research outfit Technavio estimates the United States' sports betting market alone will grow at an annualized pace of 10% per year between 2021 and 2025, ending that stretch $106.2 billion bigger than it was when it started it.
While PayPal can also be used to fund certain betting apps, it's not a growth opportunity the company has made a point of cultivating.It's arguably working hardest to defend its core business.
Paysafe isn't just a sportsbook play, though. It's got more conventional offerings in its wheelhouse as well. Its Skrill & Neteller digital wallet apps are helping consumers easily and safely do business with over 25,000 retailers. Some of its brick-and-mortar clients, by the way, enjoy their access to cash registers and interfaces designed with their unique businesses in mind. Other areas of specialization for the company include real-time banking, cryptocurrency transactions, and online cash transfers that don't require a credit-based account.
The end result of all this effort is a history of sales growth that should -- as the graphic below illustrates -- not only stabilize its results, but lead Paysafe out of the red and into the black this fiscal year. The bottom line is only expected to keep getting better from there.
Data source: Thomson Reuters. Chart by author.
This is at least somewhat in contrast with PayPal's present and foreseeable future. Although it's still the name in the payments business to beat, full-year guidance released in February is a red flag of sorts. Analysts were collectively looking for top-line growth of, on average, around 18%, in line with the company's own guidance offered in November. Now PayPal is only expecting sales growth of between 15% and 17% in fiscal 2022. Its earnings outlook for the year is similarly disappointing.
The better bet, for now
Despite PayPal's apparent 2022 headwind, the question remains: Is Paysafe the better buy as long as bigger players like Block or PayPal are around?
Paysafe's progress isn't in dispute. Neither is its potential. Its smaller size seems to be more of an upside than a liability, allowing it to develop customized solutions that address needs as they develop. Bigger companies like PayPal or Mastercard may have deeper pockets, but simply maintaining an already-massive market share requires a lot of resources. It's a challenge smaller names like Paysafe don't face, and Paysafe probably won't face until it's much, much bigger than it is now.
On balance though, PayPal still remains the smarter play for most investors right now if only because you know exactly what you're getting (warts and all). While not likely to drive top-line growth of 18% this year, growth of 15% to 17% is still pretty darn good given its current size. And, if nothing else, there's some comfort in knowing PayPal is still the world's most used digital payment service and the world's most recognized online-payment option. Between the modest amount of information and limited analyst coverage of the company, in addition to the CEO switch announced just last week, Paysafe's future is still a bit too fuzzy to make a major bet on just yet.
One thing is for sure though: Paysafe is most definitely a name you'll want to keep tabs on from here.
