PayPal

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PayPal was created in 1998 as an electronic commerce platform, and ever since going public in 2002, the stock has been a favourite of investors. The company is involved in facilitating payments and funds transfers for users across the globe. By creating an account with PayPal and then connecting a bank account or credit card, users can send and receive money all around the world.

How PayPal works

As well as moving funds more quickly and easily, Paypal also has the goal of making online purchases more secure. It achieves this by keeping its users’ credit card and bank account numbers from being transmitted over the internet. PayPal grew steadily in the late 1990s but became really popular thanks to its use as a payment facilitator on the auction site eBay. It was used so heavily on eBay that the company acquired PayPal and made it the official transfer service for eBay in 2002. In 2015 PayPal was spun off as an independent entity, and investors have had access to PYPL for stock trading ever since.

PayPal Stock

As global societies have been moving away from physical cash and towards digital payment methods in the 21st century, companies that facilitate such payments have benefited greatly. Perhaps none so much as PayPal, which has positioned itself to take advantage of this trend long into the future.

PayPal Price History

PayPal Holdings (NASDAQ: PYPL) debuted on the Nasdaq exchange in July 2015 at $38 a share after being spun off from eBay. Shares remained in a range of $30 to $40 from then until the beginning of 2017 when they finally began to take off in response to significant growth in PayPal’s revenues and profits. From January 2017 to January 2018, PayPal stock went from $40.35 to $86.32 for a gain of more than 100%. Not bad for one year. 2018 was a consolidation year for the stock, with the stock remaining in a range of $86.32 to $93.44 a share before finishing the year nearly unchanged at $85.75. PayPal stock underperformed the underlying Nasdaq in 2019, with PayPal returning 28.6% while the Nasdaq returned 35.2%. In 2020, PayPal stock nearly doubled going from around $100 to over $200 in November as stay-at-home stocks and those services facilitating them saw amazing gains due to lockdown restrictions.

PayPal Benefits

PayPal was launched to make online shopping easier, faster, and more secure. And it has accomplished that by allowing consumers to check out at online sites without entering credit card or banking information. This speeds the check out process and makes identity theft less likely. PayPal has also been a boon for merchants, who see increased conversions for customers who use PayPal. This has been especially true for mobile purchases, which is the largest growing e-commerce segment.

PayPal for Mobile Users

The PayPal One Touch feature means users can register their hardware device and make purchases with it at millions of sites with one-click. This has made PayPal a leader in the mobile payments industry. In the second quarter of 2020, PayPal’s net payment volume amounted to 221.7 billion U.S. dollars; this was a 29 per cent year-on-year growth. This volume was generated through over 3.74 billion transactions, which PayPal processed in that period alone. This highlights just how strong PayPal is as an electronic payment processor.

PayPal’s Network Effect

Because PayPal is a platform-based business, it can see huge benefits from its network effects. So, as more merchants accept PayPal as a payment method, the platform is increasingly valuable to customers. At the same time, with more customers using PayPal, it becomes increasingly valuable to merchants. This network effect creates a virtuous cycle that’s lifted PayPal’s user base by 16% annually to 295 million as of the third quarter of 2019.

Growth Prospects for PayPal

As you might guess, by the size of its user base and mobile payments, PayPal is operating in a truly massive global payments ecosystem. And that’s only expected to grow, with the roughly $3.5 trillion in global e-commerce sales in 2019 expected to balloon to $6.5 trillion by 2023. PayPal’s share of this is roughly 20%, and given the network effect, its market share should grow in the coming years. Even at 20% market share, PayPal would be handling $1.3 trillion in transactions in 2023. PayPal’s recent growth has been greatly due to the massive growth in Venmo, which PayPal acquired in 2012. Payment volumes at Venmo, which did not begin accepting merchant payments until 2015, grew by 64% in the third quarter of 2019, to $27 billion. It’s important to note that PayPal hasn’t begun to monetize Venmo yet, but when it does the resulting revenue will be quite helpful to PayPal’s balance sheet.

Is PayPal Stock a Bargain?

It doesn’t look like it at first glance. The current P/E of over 76.50 is far above that of most financial services companies. While that still sounds high initially, it isn’t unreasonable to pay that much for a company that’s a leader in its sector and is looking to grow earnings by more than 18% a year over the next five years. PayPal also has $5 billion in cash on its balance sheet to sweeten the pot. Consider too that analysts feel PayPal shares could double in those same five years. That assumes PayPal maintains at least a 20% share of the global e-commerce payments market, and its revenue grows at the same pace as e-commerce spending. With operations scaling, PayPal’s profit margins would almost certainly expand, and its net income has the potential to double. And earnings per share could grow at an even faster rate if PayPal maintains its stock repurchase plan. With those things in place, PayPal stock should double by the end of 2024, making a purchase of PYPL during the 2020-2025 time frame a good buy, especially on dips.

How to Trade PayPal Stock

With PayPal stock seemingly poised for such high growth, it’s a good candidate for purchases on dips. Traders will need to be nimble though as a look at the daily chart of PayPal makes it clear that dips between 2018 until 2020 have been few, and quickly resolved themselves. Alternatively, more active traders will want to take a look at technical indicators such as moving averages, relative strength index, oscillators, and Fibonacci ratios on shorter time frames, such as the 4-hour chart, or even the 1-hour chart for those who are extremely aggressive. These technical indicators can highlight potential short-term trading opportunities.

The Bottom Line

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PayPal Stock Trading FAQ

• Why should I trade PayPal shares?

  PayPal is the largest online payments platform, and with over 300 million global users it continues to grow at a double-digit rate. In addition to that, the stock has been appreciating since its debut in 2015 as investors recognize the strength of the brand, and the growth potential for the services offered by the company. Plus, the company continues to expand into new service offerings that are designed to increase it user base, and to generate more revenues. Trading in PayPal shares is speculating that this global payments provider will be able to realize its growth potential, which is something it has excelled at recently.

   
• Is PayPal the best payment provider stock for trading?

  There are very few publicly traded companies in the same online payments service that PayPal operates in. Some would say the closest competitors for PayPal are Mastercard and Visa, but they are somewhat different since they offer what amounts to a short-term loan. Of course, PayPal could begin to offer that type of service too, it has for its business users already. But in terms of strictly online payment processing companies PayPal is almost certainly the best one for stock trading purposes. Investors in the stock have also benefitted from the strong uptrend seen in shares over the past several years.

   
• What’s the best strategy for trading PayPal shares?

  Previously we would have said that the best strategy for trading PayPal shares is a trend following or momentum-based approach, but as of late 2020 the price action of the stock seems to be changing. After recovering from the March 2020 COVID-19 inspired fall, shares seem to be trading in a more sideways manner, and are also exhibiting an increased level of daily volatility. This makes the stock an excellent choice right now for scalpers and day traders, but not so good for swing traders who might find themselves getting whipsawed by the rapid directional changes in the price action of PayPal.