What happened
Shares of PayPal Holdings (PYPL -2.36%) were up 6.7% as of 11:50 a.m. ET today after Amazon announced it would offer Venmo as a payment option to U.S. customers in time for Black Friday. PayPal acquired the peer-to-peer payment service through the acquisition of Braintree in 2013.
This is good news for PayPal, whichhas seen its share price fall 53% this year over slowing growth. Here's what this could mean for the beaten-down fintech stock.
So what
Venmo made up 18% of PayPal's total payment volume in the second quarter, but it's grown very fast historically. Venmo's payment volume has increased at an annualized rate of 36% over the past three years.
Monetizing users has been the challenge for Venmo, since the app allows users to send money from their cash balance at no cost. (The service charges a 3% fee on credit card transactions.) However, a massive customer base at Amazon could accelerate Venmo's revenue contribution to PayPal.
Now what
Venmo recently signed up Dick's Sporting Goods, DraftKings, Booking Holdings, and The Washington Post as new merchant partners, so PayPal has momentum here. Signing Amazon is like signing up dozens of merchants in one go. The tech titan commands 30% share of the U.S. e-commerce market.
Adding more merchants is a key revenue opportunity for Venmo. The app generated $100 million in revenue in July alone, or an annual run rate of over $1 billion. That's following a quarter in which commerce volumes increased over 250% for the service.
With the stock falling hard in 2022, growth expectations are low right now, so any good news on Venmo's part to monetize users and contribute more revenue to PayPal's top line is a catalyst to watch.
