PayPal Stock Forecast: PayPal Is Still The Best Bet On The $6.68 Trillion Digital Payments Industry

motek 1The PayPal Stock Forecast article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

  • The high valuation ratios of PayPal’s stock are justified. PayPal is still the king of digital payments.
  • The total transaction value of global digital payments is $6.68 trillion. At 12.01% CAGR, it will be worth $10.517 trillion by 2025.
  • PayPal’s Q2 2021 said its total payment volume was $311 billion (+40% Y/Y). This is higher than Q1’s total payment volume of $285 billion (+50% Y/Y).
  • Seeking Alpha’s Quant Rating algorithm has a Neutral outlook for PYPL. I Know First’s stock prediction algorithm has a very bullish 1-year trend score for PYPL.
  • I heed the prediction of I Know First. PYPL is a buy and I give it a 1-year PT of $320.

PayPal’s stock is +370.91% since my July 2017 buy recommendation. PYPL’s 5-year price return is +618.87%. The prudent thing to do is to take your profits and run. However, based on its Q2 2021 total payment value (TPV) of $311 billion (+40% Y/Y), PayPal’s growth story is still attractive. PayPal is on track to finish 2021 with TPV of $1.2 or $1.3 trillion. Lack of worthy challengers, means PayPal remains the biggest beneficiary of the growing $6.68 trillion/year TPV of global digital payments.


(Source: Seeking Alpha Premium)

The humungous 5-year price return of PYPL has given it high valuation ratios. PYPL’s forward P/E of 58.30 elevates it near the 62.15 forward P/E valuation of e-commerce goddess Amazon (AMZN). PayPal was only spinned-out of eBay (EBAY) last 2015. The forward P/E of eBay is only 19.30x. PayPal’s market cap is now $323.03 billion, dwarfing its former parent firm’s market cap of $48.12 billion. My point is that PayPal’s digital payments business is highly-valued because it is very profitable. Investors adore PayPal’s 400 million active users and 30 million partner merchants. These numbers do not include the loyal users of PayPal’s subsidiaries like Venmo and Xoom.

PayPal is now so entrenched in digital payments that nobody dares to complain when PayPal raises its transaction fees.

High-Growth Plus High-Profitability Makes PayPal A Buy

The long-term loyalty of its users and partner merchants has enabled PayPal to enjoy a net income margin of 20.42%. This is far higher than PayPal’s closest rival Square’s (SQ) net income margin of 3.60%. Square’s cash from operations is only $831.25 million. This is significantly lower than PayPal’s $5.73 billion. Square’s operations are largely confined to North America. It simply cannot compete against PayPal’s global operations.

(Source: Seeking Alpha Premium)

PayPal is also bigger than Square Payments in the United States. The high profitability of PayPal is also because Amazon Pay and Square Payments are weak challengers to PayPal in the U.S. They are also weak challengers to PayPal’s 54.5% global market share.

(Source: Wallstreetzen.com)

The long-term prosperity of PayPal is only getting better. PayPal is now a quasi-bank lender that competes directly against Visa (V) and MasterCard (MA). PayPal Credit is available in the United States, Canada, Europe, Japan, and in other countries. The 23.99% Variable Purchase APR of a PayPal Credit card makes it more affordable than MasterCard and Visa’s credit card products. PayPal is already the leader in digital payments and it might just become a leader in traditional credit card retail shopping.

(Source: PayPal.com)

The expansion to the traditional credit and debit card payments system will help PayPal improve on its estimated forward revenue CAGR of OF 21.09%. Any company that can do revenue CAGR of 20% is already a high-growth stock that deserves forward P/E valuation ratios of 60x or higher. PayPal is not going to grow as fast as Amazon but it certainly will outpace the growth of Visa, MasterCard, MoneyGram, and Western Union.

(Source: Seeking Alpha Premium)

Aside from digital payments, PayPal also has a reliable growth driver in cross-border remittances. PayPal’s $890 million purchase of Xoom has made it a top player in global remittances. The world’s cross-border remittances were worth $702 billion last year. The lower remittance fees of Xoom is why Western Union is losing its leadership grip on money transfers. Xoom and PayPal also allow recipients of money transfers to receive them through their GCash accounts. GCash is the Philippines’ no. 1 digital wallet with over 33 million users. GCash has thousands of cash-in/cash-out partner outlets. Using our smartphones as GCash digital wallets, we can buy almost anything online or at regular retail stores. There’s still no PayPal debit/credit card here in the Philippines but GCash MasterCard offers direct linking to PayPal accounts. I can now buy gas refills and pay using the GCash app on my Android phone.

PayPal’s crafty partnership with local digital wallet operators protects its global leadership on digital payments. PYPL is grossly undervalued compared to SQ. Going forward, PYPL deserves 64x forward P/E. It is a market abnormality that the much more profitable and larger PayPal has lower valuation ratios than Square. 

(Source: Finbox.io)

PayPal Stock Forecast: Conclusion

PayPal’s stock is a buy because it continues to be the king of digital wallets. PayPal’s decades-long leadership in digital payments is a long-term wide moat. Digital wallets will continue to become the most dominant digital payments solutions for e-commerce. Statista’s chart below shows digital wallets will account for more than 51% of e-commerce transactions by 2024. The global e-commerce transactions got boosted by this ongoing pandemic. It is now worth $26.9 trillion.

(Source: Statista Premium)

The inability of other digital wallet companies to challenge PayPal’s global leadership convinced me PYPL can end 2021 with an EPS of $5.0. SQ has a forward P/E of 145.81. Let us, therefore, give PYPL a forward P/E valuation of 64x. Multiply them and we get $320. This is my 1-year price target for PYPL. It is slightly lower than the $336 average PT of TipRanks. The future is very rosy for PYPL. I say this so based on its monthly technical indicators and moving averages. We have nothing to fear. Buy more PYPL.

(Source: Investing.com)

My buy recommendation for PYPL is supported by its compelling algorithmic 1-year trend score. Unlike the Neutral rating from Seeking Alpha, the stock prediction AI algorithm gives PayPal’s stock a 1-year trend score of 299.89. This score means I Know First is very bullish on PYPL. I Know First is very confident PYPL has more upside potential within the next 12 months.

Past Success With PayPal Stock Forecast

I Know First has been bullish on the PayPal stock forecast in the past. On August 4th, 2020 the I Know First algorithm issued a forecast for PYPL stock price and recommended PYPL as one of the best consumer stocks to buy. The AI-driven PYPL stock prediction was successful on a 1-year time horizon resulting in more than 39.80%.

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