Regardless of Square’s competitive moves investors shouldn’t forget about PayPal’s advantages
In many ways, PayPal pioneered the fintech business in the 1990s when it allowed customers to make payments over email. The introduction of Square’s smartphone credit card reader and subsequent expansion of its ecosystem has made it an increasingly apparent rival.
Because of this competition, investors may overlook the fact that PayPal has shifted its emphasis from businesses to individuals. The fintech stock is well-positioned for long-term growth because of its focus on that area.
A compound annual growth rate of 27% is predicted for the fintech sector by Research and Markets through 2026. Both PayPal and Square might profit from industry development for years to come if this prognosis is correct.
PayPal, on the other hand, seems to have an edge over other payment processors when it comes to consumers. BNPL (buy now, pay later) was initially introduced by PayPal, which then enlarged the market by $2.7 billion for Japanese BNPL startup Paidy. Afterpay was purchased by Square for $29 billion, a figure that Square could not afford to pay. Since PayPal’s acquisition of Honey, it has added discounts from more than 30,000 shops to its service. Paying using a company-issued debit card is required for Cash App to provide discounts.
PayPal’s advantages
During the first nine months of 2021, PayPal’s strategy generated $18.5 billion in revenue. In order to offset the almost 80% drop in non-core revenue, the company was able to reduce operational expenditures by 17% and reduce taxes by 96%.
This trend is expected to continue, as the business estimates 2021 sales of roughly $25.4 billion, an 18% year-over-year rise, during its third-quarter 2021 earnings call. PayPal also expects its EPS to rise by 19 percent to $4.60 in 2021 from its current level of $4.30. Many firms are beginning to embrace PayPal as its popularity grows in the financial sector. The Forex market and its financial service providers are one illustration of this. As time passes, the number of Forex brokers accepting PayPal grows as a result of consumers’ growing desire to utilize PayPal as a deposit and withdrawal option. Because of the growing demand for this payment method, the demand for stocks goes up, respectively. Over the last year, PayPal’s stock has taken a worse blow than Square’s, despite its consistent growth. Compared to Square, which lost just 5% of its value within the same period, it lost 13%. Paypal’s stock price has grown 400% since it was reintroduced to the public markets in 2015 after its split from eBay.
In addition, PayPal trades at a P/E ratio of 45, whereas Square is hazardous at over 180 times earnings. PayPal has a lower sales multiple than Square, selling for seven times sales compared to nine times sales. ‘ In the first nine months of fiscal 2021, 60 percent of Square’s income came from Bitcoin payment volume, notwithstanding the P/S ratio. Square would price at a much higher sales multiple without the payment volume, making PayPal a much more reasonable company.
Investors may benefit from PayPal’s unique perspective on fintech. When it comes to social payments and corporate clients, PayPal has a distinct advantage because of its direct-to-consumer fintech solutions.
Finally, since PayPal’s reintroduction to the public markets, the company has developed swiftly, giving growing earnings with a cheap multiple. PayPal is expected to continue to play a significant role in this developing market based on its value and its competitive advantages.
The role of PayPal in fintech industry
PayPal was one of the few organizations prepared to deal with the e-commerce issues that arose as a result of the COVID-19 epidemic.
In its first three months, the online payments provider experienced 10 years’ worth of e-commerce growth in the first three months of its eight-month lockout period.
PayPal and Venmo, a subsidiary of PayPal, both announced record-breaking growth in Q3. Companies like Amazon and Uber, whose usage has also surged during COVID-19, are also reporting significant growth in the epidemic, so the company’s success isn’t unique.
PPP loans were PayPal’s first effort into pandemic-specific capabilities, which began in April. While PayPal was granted permission by regulators to disburse cash, it also revealed how well-prepared the fintech sector is to step in when conventional banks’ infrastructures can’t keep up with demand.
PayPal has been able to concentrate its efforts on smart new product releases that support a customer base that has developed organically since the spring, unlike conventional banks, who have been compelled to swiftly alter their services since the outbreak. The company’s BNPL feature, which enables PayPal customers to finance their purchases in six payments, is one of the most important.
With the introduction of QR code payments, PayPal has been able to outpace other fintech as well as the largest banks on the market. PayPal is well-positioned to end 2020 on a high note, thanks to its current offers and future collaborations, as the Christmas season approaches. With a long history of working with Google Pay, the firm has become a preferred payment method for in-app purchases on Facebook and Instagram as well. When it comes to digital payment options, 57% of customers believe they are influenced by a merchant’s digital payment services, and many retailers are realizing they can best reach consumers via PayPal.