PayPal Holdings Inc (NASDAQ: PYPL) is scheduled to release earnings [next week]. And the Street is already bullish. Morgan Stanley just raised its price target from $103 to $113 and PYPL stock is in a sector with a lot of tailwinds right now.
PYPL stock is up 36% in the past 12 months and nearly 30% year to date. That’s a very respectable run. It’s ability to capitalize on consumer sector has certainly given it a head start if not a solid competitive moat for all the newcomers that have shown up since its founding in 1998.
PYPL Stock Spun Off With Perfect Timing
Just as PYPL stock started to spread its wings, the financial sector was losing some of its post-crash regulations and disruption started hitting the banks and the way they interacted with their customers.
In a industry that traditionally risk-averse and top-down driven, this new banking option empowered individuals and allowed them unprecedented access to their money.
When peer-to-peer (P2P) banking hit — being able to send money directly from your account to someone else’s account on your mobile phone — it opened up a whole new world where banks no longer functioned as anything more than a repository for your cash before you spend it.
PYPL’s Venmo is one of two of the most popular P2Ps out there now. Zelle, which is owned by a consortium of the big banks, still leads PYPL, but not by much.
Essentially, the big banks saw that if they didn’t move quickly, P2P banking could significantly hurt their business with younger generations that weren’t interested in traditional banking, and more importantly, didn’t have to be.
New services were popping up and the best solution was for the national banks to circle the wagons and come up with their own digital payment services platform. In 2011, Zelle was born. Its instant payment service was launched in 2017.
But even with that significant competition, PYPL is still growing. In Q4, had an 80% spike in transaction volume. For all of 2018, volume on Venmo increased 49%.
About 85% of the financial institutions in the Zelle universe are regional and local banks and savings and loans. But PYPL is still focused on the individual consumer and is now adding features like credit cards as well as a variety of other strategies to encourage stickiness and grow its business.
This isn’t a zero-sum game. Both strategies have great opportunities to grow their businesses. And PYPL is doing a very good job on that front because it has its roots as a technology disruptor rather than a branch of the largest financial institutions in the world.
The Bottom Line for PYPL
My Portfolio Grader gives PYPL stock a B rating right now, but a few more quarters like the last one will certainly move that grade — and the stock price — up to a new level.
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Source: Investor Place