When PayPal (NASDAQ:PYPL) and eBay (NASDAQ:EBAY) split off three years ago, the consensus opinion was that PYPL would be the stock to bet on. And yes, this has turned out to be the case. During this period, PayPal stock has posted an average annual gain of 35.24%, whereas EBAY’s has been a more modest 15.14%.

Something else: There is a stark difference in market caps.

The value of PYPL stock is $113 billion and eBay’s is $34 billion.

So yes, the split off has unlocked quite a bit of value for shareholders.

But what now? Is PayPal still a good play right now?

Well, there are certainly some risk factors.

For example, the market is highly competitive, with fast-growing operators like Square (NYSE:SQ) and many well funded fintech startups.

But even old-line banks are threats like Bank of America (NYSE:BAC) and JPMorgan (NYSE:JPM).

What’s more, PayPal is far from cheap at current levels. Note that the price-to-earnings ratio is at a hefty 56X.

But despite all this, I still think the bull case is still intact. And to see why, here’s a look at three major advantages:

PayPal Stock: Venmo
PayPal’s Venmo came from eBay’s $800 million acquisition of Braintree in 2013. In the press release for the deal, the app got only one mention – at the end! But of course, Venmo turned out to be a huge winner and is worth billions today. In fact, it is the main growth driver for PYPL.

Venmo is a peer-to-peer payments app that has social features (such as sharing information about purchases). It has become a must-have for the Millennial generation.

No doubt, growth has certainly been torrid. In the latest quarter, total payment volume (TPV) soared by 80% to $19 billion. According to PYPL, this year should see the TPV hit a whopping $100 billion.

The company has been making initial moves to monetize Venmo, with fees from a debit card and an instant cash-out service. For 2019, the forecast is for revenues to exceed $200 million.

PayPal Stock: Payments Operating System
A critical strategic move for PYPL CEO Daniel Schulman has been to partner with financial institutions. The rationale: to allow more choice for customers. And yes, it has been spot-on.

But there has been another goal with this strategy – that is, to create an operating system for mobile and digital commerce. And pulling this off could be a game changer for PayPal. As seen with companies like Microsoft (NASDAQ:MSFT), platforms can be extremely valuable. There are also significant barriers to entry.

PayPal does have the key elements for creating an operating system. First of all, the company has a massive user base, with about 267 million active accounts. This is expected to be over 300 million by the end of the year.

Next, PayPal has the necessary core technologies for payments, such as merchant processing, ecommerce, cross-border payments and fraud detection. Such capabilities are difficult to replicate, especially as an integrated system.

PayPal Stock: Market Opportunity
There are secular forces that are driving digital payments like the ubiquity of smartphones, tablets and wearables. The result is that payments capabilities are being integrated into chat, ride-sharing apps and many other apps.

So how big is the digital payments opportunity? According to Schulman, it is a staggering $100 trillion! Keep in mind that PYPL has only a couple percentage points of the market. In other words, there remains lots of runway for the company.

— Tom Taulli

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Source: Investor Place