Bullish analyst sentiment is sending PayPal Holdings Inc (NASDAQ:PYPL) stock higher on Monday. Bernstein just upgraded shares from “Market Perform” to “Outperform,” and slapped a $61 price target on PYPL stock, implying roughly 10% upside.
Analysts there noted that a new checkout button, expanded partnerships, and a potential strategic acquisition could help power earnings out-performance over the next several quarters.
Meanwhile, KeyBank initiated coverage on PYPL with an “Outperform” rating and a $60 price target.
PYPL stock is up about 2% Monday as of this writing. But while the analyst coverage certainly helps, there is also something else at play here, and it comes back to the one company that’s seemingly moving markets all by itself:
Amazon.com, Inc. (NASDAQ:AMZN).
PayPal: A Pure Play on E-Commerce Growth
Amazon Prime Day is this week, and it’s expected to be huge. The deals last extra-long for Prime members, who are far more numerous than this time last year. Grocery discounts are expected to be in the mix with the recent Whole Foods Market, Inc. (NASDAQ:WFM) acquisition. Overall, the consensus is for Prime Day to be a big day.
But how does that affect PayPal? After all, Amazon doesn’t accept the service, so a huge day for Amazon won’t directly translate into anything on the revenue front for PYPL.
Fair point — though the past year has seen increasing talk about the potential for PayPal to eventually make its way on to Amazon. But Prime Day is important because it’s a sign of the times — times that are defined by e-commerce and digital payments.
The global retail environment right now is seeing a shift from brick-and-mortar shopping to e-commerce. That also means the global retail environment is transitioning from cash to digital payment methods.
Enter PayPal, a pure play on this shift.
While PYPL doesn’t list Amazon as one of its customers, they do list pretty much everyone else, including online-only retailers like eBay Inc (NASDAQ:EBAY) and Overstock.com, Inc. (NASDAQ:OSTK), as well as brick-and-mortar outfits such as Wal-Mart Stores Inc (NYSE:WMT), Home Depot Inc (NYSE:HD) and Ulta Beauty (NASDAQ:ULTA), among many others.
And while some of these retailers are struggling with their overall operations, those struggles are due to big declines on the brick-and-mortar side of the businesses. At almost all of these retailers, digital sales are surging.
That’s why PYPL stock is booming.
A Strong Growth Story
The PayPal growth story is nothing short of tremendous right now.
Last quarter, growth was impressive in every core operating metric. Revenues and earnings both jumped 19% higher. PayPal added 6 million net new active accounts in the quarter, marking the platform’s best organic growth in 3 years. In fact, relative to last Q1, the 6 million net adds is a 35% increase, so growth is accelerating.
Engagement is also growing. Transactions per active account jumped up to 31.7, up 0.6 from Q4. That continues a multi-quarter trend of transactions per active account growing between 0.5 and 1.0. Considering the scale of PayPal’s user base growth, simultaneous unit transaction growth is especially impressive. It implies that new customers are not at all hesitant about using the platform.
And growth is coming on both sides of the transaction equation. As more and more customers join PayPal, more and more merchants are joining as well. Merchant services volume grew 30% in Q1, leading to a total payment volume increase of 25%.
Perhaps most importantly, PayPal is also exposed to the hyper-growth segment of mobile commerce. PayPal reported that mobile payment volume was up a whopping 51% in Q1. That compares to 53% growth last quarter, and 56% two quarters ago. So while mobile growth is slowing somewhat, it has remained above 50% for several consecutive quarters.
Meanwhile, PYPL’s mobile-based app Venmo is also on fire. Venmo volume surged a whopping 114% to $6.8 billion in the quarter.
Bottom Line on PYPL Stock
These sort of hyper-growth numbers shouldn’t be any surprise. They align perfectly with the macro backdrop of e-commerce and digital payments booming.
This trend isn’t going to slow any time soon. Neither will PayPal’s growth, nor PYPL stock.
PayPal shares are a pure play on the global transition from cash to digital payments. This transition is only accelerating, and that means PYPL will only head higher.
As of this writing, Luke Lango was long AMZN and PYPL.
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