Market Mad House

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


Can PayPal’s Endless Growth Continue?

PayPal’s endless growth is accelerating, but is it sustainable? The number of PayPal (NASDAQ: PYPL) active user accounts grew by 60 million over the past year.

In detail, Statista estimates PayPal (PYPL) had 286 million user accounts in 2nd Quarter 2020. That number grew to 346 million at the end of Second Quarter 2020. Similarly, Stockrow estimates PayPal’s revenues grew by 22.21% in the quarter ending on 30 June 2020.

In contrast, PayPal’s revenues grew by 11.87% in the quartered ending on 31 March 2020. Similarly, PayPal’s quarterly gross profit grew from $1.889 billion on 31 March 2020 to $2.555 billion three months later.

PayPal’s Growth Pays Off

PayPal’s growth is paying off in the form of rising income. For instance, PayPal’s quarterly operating income grew from $398 million on 31 March 2020 to $951 million three months later.

Dramatically, PayPal’s quarterly common net income grew from $84 million on 31 March 2020 to $1.53 billion on 30 June 2020. Thus, PayPal is growing and making more money from that growth.

For instance, PayPal’s quarterly operating cash flow grew from $1.504 billion on 31 March 2020 to $2.383 on 30 June 2020. Interestingly, PayPal’s quarterly cash from financing grew from $2.241 billion on 31 March 2020 to $6.278 billion three months later.

Conversely, PayPal’s quarterly ending cash flow fell from $16.742 billion in March to $1.262 billion on 30 June 2020. In addition, PayPal’s cash and short-term investments grew from $10.186 billion on 31 March 2020 to $13.048 billion on June 30, 2020.

Thus PayPal generates enormous amounts of cash from its business. I like PayPal’s growth because it leads to cash.

PayPal has More Value

Finally, PayPal’s value has grown dramatically in recent months. In fact, PayPal’s the value of PayPal’s total assets rose from $54.266 billion on 31 March 2020 to $63.166 billion on 30 June 2020.

Similarly, in 2020 PayPal’s share price rose from $110.75 on 2 January to $207.71 on 1 September 2020. Astoundingly, PayPal’s market capitalization rose from $126.88 billion on 31 December 2019 to $240.87 billion on 3 September 2020.

I think Mr. Market is accurately priced PayPal at $205.66 on 3 September 2020. In addition, I think PayPal (PYPL) has a high margin of safety. Thus I consider PayPal a good stock, however, many people will wonder what future PayPal has.

What Future Does PayPal have?

PayPal serves a growing market. For example, Statista estimates the number of mobile contactless payment users worldwide grew from 440 million in 2018 to 760 million in 2020.

Predictably, PayPal (NASDAQ: PYPL) has many competitors. The most dangerous of those competitors is Square’s (NASDAQ: SQ) Cash App. For instance, Ark Invest estimates the number of Cash App monthly active users grew from seven million in 2017 to 24 million at the end of 2019.

Moreover, I think Cash App enables Square to tap new markets. For instance, Square claims the Cash App’s Bitcoin (BTC) revenues grew by 600% in Second Quarter 2020. If Square can get that level of growth from Bitcoin what happens if Square adds better cryptocurrenices; such as EOS (EOS)or Etheruem (ETH), or stablecoins such as Tether (USDT), to the Cash App.

Why PayPal Needs Cryptocurrency

Notably, CoinMarketCap estimates Tether (USDT) had a 24-Hour Market Volume of $46.637 million on 1 September 2020.

In contrast, CoinMarketCap gave Bitcoin (BTC) a 24-Hour Market Volume of $26.204 million and Ethereum (ETH) a 24-Hour Market Volume of $17.945 million on the same day. However, CoinMarketCap gave EOS (EOS) a 24-Hour Market Volume of $2.316 million on 1 September 2020.

The 24 Hour Market Volume is the amount of money people spend on a cryptocurrency on a particular day. CoinMarketCap’s data shows people spend tens of millions of dollars on slow, clunky, and hard to use cryptocurrencies each day.

I have to wonder what happens to PayPal’s Venmo if Cash App rolls out a cryptocurrency that is fast, scalable, and easy to use? Fortunately, for PayPal, today’s cryptocurrencies are slow, cumbersome, and hard to use.

Why PayPal Needs Stablecoins Now

For instance, estimates Bitcoin (BTC) was processing 5.167 transactions per second (TPS) on 1 September 2020. That means a Bitcoin payment app could crash if it tries to process over five payments a second.

Hence, it could take 20 or 30 minutes or an hour for a game to accept Bitcoin payments. I don’t think gamers want to wait an hour to purchase play or weapons.

Therefore, the only thing protecting PayPal from cryptocurrency is cryptocurrency’s limitations. I think PayPal needs to start experimenting with cryptocurrency now and develop its own stablecoin.

I believe stablecoins are the future of cryptocurrency because stablecoins enable fast payment in fiat currencies with altcoins. To explain, a stablecoin is a cryptocurrency that uses a digital robot to make payments in fiat currencies. Thus, a Square (SQ) or Cash App branded stablecoin could be a dangerous threat to PayPal and Venmo.

Where PayPal Needs to Go

I think one of PayPal’s greatest strengths is its ability to make smart acquisitions. The best PayPal acquisition is the peer-to-peer (P2P) solution, Venmo.

Venmo achieved a Total Payment Payment Volume of $37 billion in 2nd Quarter 2020, Statista estimates. Venmo’s Total Payment volume rose from $24 billion in Second Quarter 2020. Other notable PayPal acquisitions include Xoom, Honey, Braintree, iZettle, and Tradera.

Given that history, I think PayPal needs to make more acquisitions and leverage them. Some acquisitions I think PayPal (PYPL) needs to consider include: Coinbase, TikTok USA, Twitter (NYSE: TWTR), Telegram, Tether, and EOS owner BlockOne.

To elaborate I think Coinbase, Tether, and BlockOne could give PayPal the cryptocurrency, blockchain, and stablecoin experience it lacks. I believe TikTok USA or Twitter could give PayPal social media leverage.

Why PayPal Needs TikTok

I think PayPal needs a social media presence to counter Telegram and Facebook’s (NASDAQ: FB) payment efforts. I speculate Facebook’s Libra stablecoin scheme and WhatsApp Pay could make give the Zuckerberg Empire a dangerous competitor to PayPal.

Buying TikTok USA, which claims to have 100 million American members, could give PayPal the social media presence it needs to fight Facebook. In addition, PayPal could team with Microsoft (NASDAQ: MSFT) and/or Walmart (NYSE: WMT) to buy TikTok USA.

I think building Venmo into TikTok could be a brilliant move for PayPal. I think another smart move for PayPal is to buy both TikTok and Twitter. I think PayPal needs TikTok or another social network because I believe social media is the future of payments.

Another potential threat to PayPal is a Walmart-owned TikTok USA. I think Walmart could leverage TikTok to drive mass adoption of its Walmart Pay, payment app. Similarly, PayPal could use TikTok to drive mass adoption of Venmo.

Is PayPal a Good Investment?

I think PayPal Holdings Inc. (NASDAQ: PYPL) is an excellent investment for ordinary people because it has a high margin of safety. Moreover, I believe Mr. Market correctly priced PayPal at $205.66 on 30 September 2020.

PayPal’s growth and cash make PYPL a safe investment. If you can live without dividends, you need to investigate PayPal because the payments powerhouse is a fast growing moneymaker.