Over the last several years, mobile payment methods have pushed their way into the transaction scene and onto the national stage with the likes of Apple Inc.’s AAPL Apple Pay, Alphabet Inc.’s GOOGL Android Pay, and Samsung Pay grabbing headlines.
It seems clear that the long-term transition to a more cashless, mobile payment-based society is underway. But it is still very much just getting out of the starting blocks.
Checks and cash still account for nearly 85% of payment transactions around the world, but mobile payment has gained traction. A reported 39% of U.S. mobile phone users made a mobile payment in 2015, and the number could climb to nearly 70% by 2017.
Still, a recent Wall Street Journal report suggeststhat only 13% of the estimated 680 million iPhone users have used Apple Pay.
This leaves room for payment giants PayPal Holdings, Inc. PYPL and. Visa Inc. V to grow exponentially. PayPal helped revolutionize e-commerce, and Visa is a credit card king, but now both companies could benefit from investments in mobile payment.
The State of Mobile Payment
In 2017, consumers will spend an estimated $780 billion globally via their mobile devices. According to some estimations, $503 billion worth of via mobile payments could be made in stores in the U.S. alone by 2020.
Europe and Australia are leading the way in the shift to mobile and contactless payment, and Visa has placed itself in the drivers seat. In Europe, based on Visa data, 1-in-5 Visa payments were made via contactless mobile credit cards between May 2015 and April 2016, amounting to a total of 3 billion contactless Visa transactions.
Visa’s payWave contactless mobile point-of-sale systems were available at 3.2 million POS terminals during that same time. The credit card giant expects the service to be available at all Visa POS terminals in Europe by 2020.
In Australia, an estimated 59% of the population made a purchase with a contactless card in 2016. Visa also recently began experimenting with innovative ways for consumers to use contactless payment methods. Visa, with the help of an Australian startup, introduced contactless payment-enabled sunglasses at a few music festivals in early 2017.
After spinning off from eBay in 2015, PayPal also joined the mobile payment movement as the once revolutionary company began to seek out new ways to innovate. U.S. consumers will soon be able to make mobile payments using their PayPal mobile wallet at every store that currently accepts Visa payWave.
PayPal also owns millennial peer-to-peer mobile payment powerhouse Venmo, which could also set them up well for the future. The app recorded more than $1 billion worth of transactions in January 2016 alone.
Less than 4 million merchants in 2016 accepted Apple Pay—over 10 million accepted Visa. Apple was thought to soon take over, but its lack of availability has helped place Visa and PayPal ahead of the mobile payment curve in the U.S.
PYPL vs. V
As we jump into the head-to-head comparison between PayPal and Visa, let’s check out a few key stats from both companies:
Avg. Surprise (Trailing Four Quarters)
Proj. EPS Growth
Visa and PayPal are both Zacks Rank #2 (Buy). Over the last year, both companies have also surpassed earnings expectations. Both Visa and PayPal have very strong comparable P/E ratios, with Visa holding a small edge.
Maybe most impressively, Visa and PayPal have strong projected EPS growth. Visa and PayPal both are set to grow profits by double digits based on their massive projected EPS growth numbers, which is never bad news.
Both companies have an overall Value, Growth, Momentum Zacks Style Score of a “D,” which means both stocks have room to improve in these areas. Visa earned a “C” grade for Growth, and “D” for Value, meaning it does not present the most bang for your buck at this moment. PayPal earned a “C” grade for Growth and Value.
One thing that might give PayPal an advantage heading into earning season is that Visa currently has a negative Earnings ESP, which means Visa’s most recent earnings estimates have been lower than the overall Zacks Consensus Estimate. This makes surprise predictions more difficult.
Both companies have actively tried to look for different ways to improve growth potential and revenue streams.
Visa’s market cap is currently $206.39 billion, and its stock price has risen steadily. The credit card giant’s stock is trading for just under its all-time high at roughly $89 per share. PayPal’s market cap is $52.71 billion, and its stock is also trading at a near all-time high of $44 per share.
There are currently over 3 billion Visa cards worldwide, and the company processed $8.2 trillion worth of payments in fiscal 2016, which amounted to $15.1 billion in revenue. The company has also bolstered its relationship with online and mobile payments outlets, including PayPal.
In 2016, PayPal processed $99 billion worth of payments. PayPal's revenue was $10.8 billion, up 17% year-over-year. The company’s millennial jewel, Venmo, processed $5.6 billion in payments last quarter, up 126%. Some merchants recently began allowing customers to use Venmo, which will help expand the strictly peer-to-peer business.
The mobile payment revolution has begun, and both PayPal and Visa fought to be at the forefront of the new era of monetary transactions.
For more on this revolution listen to this episode of the Zacks Friday Finish Line Podcast:
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