Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Grocery Wars

Can PayPal Profit from Coronavirus?

Strangely, the coronavirus pandemic could be good for PayPal (NASDAQ: PYPL). For example, PayPal’s share price rose from $110.75 on 2 January 2020 to $150.86 on 22 May 2020 and fell to $148.79 on 28 May 2020.

Conversely, PayPal’s revenues and gross profit fell in the first three months of 2020. In particular, PayPal’s quarterly revenues fell from $4.961 billion on 31 December 2019 to $4.618 billion on 31 March 2020. In addition, PayPal’s quarterly gross profit fell from $2.229 billion to $1.889 billion in the same period.

Moreover, PayPal is making less money. Notably, PayPal’s quarterly operating income fell from $799 million on 31 December 2020 to $398 million on 31 March 2020. Dramatically, PayPal’s quarterly net income fell from $507 million to $84 million in the same period.

PayPal Makes Less Money

However, PayPal is capable of impressive growth. For example, Stockrow estimates PayPal’s revenue growth rate was 11.87% in the quarter ending on 31 March 2020.

One reason PayPal grows is that it takes advantage of fresh opportunities. For example, PayPal added a quick read (QR) code reader to its mobile app, CNET reports.

To elaborate, a QR Code is a bar code that an app reads through a phone’s camera. Hence, QR Codes enable touch-free and cashless payment without elaborate payment technology, such as cash registers.

Thus, small merchants and low-income entrepreneurs can accept PayPal payments. For example, flea market or farmers’ market sellers or a self-employed plumber can accept PayPal payments.

Can PayPal cash in on QR Code?

To demonstrate, if you want to pay a merchant you could show a picture of the PayPal QR Code on your phone. The merchant could take a picture of that QR Code which tells PayPal to send the payment to the merchant.

One advantage to QR Code is that some large merchants, such as Walmart (NYSE: WMT) accept QR Code payment but not NFC payment. To explain, Near Field Communication (NFC) apps, such as Apple Pay, use a wireless signal to communicate with cash registers.

Theoretically, QR Code could be more secure than NFC apps. QR Code uses no wireless signal that hackers can intercept. However, crooks can steal QR Codes and use them to gain access to payment systems.

PayPal is a Cash-Rich Company

PayPal Holdings Inc. (NASDAQ: PYPL) is a cash-rich company. For example, PayPal’s ending quarterly ending cash flow grew from $759 million on 31 December 2019 to $16.742 billion on 31 March 2020.

Additionally, PayPal’s quarterly operating cash flow grew from $1.264 billion to $1.504 billion in the same period. Plus, PayPal’s operating cash flow grew from -$149 million to $2.241 billion in the same period.

However, PayPal’s cash and short-term investments fell from $10.761 billion on 31 December 2020 to $10.186 billion three months later. Additionally, PayPal’s cash and short-term investments grew from $7.849 billion on 31 March 2020 to $10.186 billion a year later.

Thus, I think PayPal has vast amounts of value. For instance, PayPal had $54.266 billion total assets on 31 March 2020.

PayPal keeps Growing and Growing

PayPal’s platform is expanding fast. For example, Statista estimates the number of active PayPal user accounts grew from 267 million in 4th Quarter 2018 to 305 million in fourth quarter 2019.

PayPal’s peer-to-peer (P2P) money transfer app Venmo is growing fast. In detail, Venmo’s total payment volume grew from $6.8 billion in 1st Quarter 2020 to $31 billion in 1st Quarter 2020, Statista estimates.

Thus, I think PayPal has a high margin of safety because of its breakneck growth. To clarify, the growth creates safety by increasing the company’s moneymaking potential. PayPal gets safer because it has an extra means of making money.

Is PayPal a Good Stock?

I think Mr. Market underpriced PayPal (NASDAQ: PYPL) at $148.79 a share on 29 May 2020.

Therefore, I consider PayPal a good growth stock that can add value to your portfolio. However, I think investors who need income need to avoid PayPal because it pays no dividend.

Even without a dividend PayPal is an outstanding stock. However, investors who need income now should avoid PayPal.  

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