The novel coronavirus has caused many changes in how we do things. Classes are being taught using video conferencing, and many people are working from home. Online shopping has e-commerce stocks flying. We are also avoiding the use of cash. That trend — combined with the surge in online shopping — has been good news for PayPal (NASDAQ:PYPL). As a result, PayPal stock has been performing extremely well in 2020, posting a 78% gain so far this year.
Last year, Harvard Business School professor Shelle Santana wrote that the U.S. was well on its way to being a “less-cash” society. As low as 30% of payments in the country in 2017 involved cash. Santana continued:
“The rise of digital payments, which includes traditional debit and credit cards as well as mobile payments, have contributed to the steady shift in payment practices among consumers.”
In fact, 2018 data for the U.S. showed that when paying in stores, 79% of consumers were still willing to use cash (80% were also using credit cards).
PayPal ended 2018 with 267 million active accounts and a total payment volume (TPV) of $578 billion.
The company closed 2019 with 305 million active accounts and a TPV of $712 billion. Those numbers showed solid growth in PayPal’s customer base and the results were reflected in PYPL stock growth.
The company’s stock ended 2019 at $108.17, posting a 30% gain for the year.
But the real gains have been seen in 2020, as the pandemic has radically accelerated the “less-cash” behavior of consumers.
The Pandemic: Good News for E-Commerce, and PayPal
When the coronavirus pandemic struck, it hit the use of cash in two ways.
First, there was an immediate concern that Covid-19 could potentially be transmitted via cash. In March, the World Health Organization warned that physical money could be transmitting the virus. They suggested that consumers use contactless payment instead. Following suit, stores and restaurants in the U.S. began asking customers to avoid cash as well, preferring no-contact methods of payment.
Second, many U.S. businesses were forced to close down this past April. This resulted in a shift to online shopping and ordering meals for takeout or delivery — options that often rely on digital payment. Even as states began to reopen, these kinds of transactions remained popular. Many consumers have continued to avoid cash payments.
The effect of the pandemic can be clearly seen in PayPal’s results through the year.
In April alone, the company reported that it had added 7.4 million new active accounts (NAA), adding an average of 250,000 new users every day. PayPal CEO Dan Schulman wrote:
“As our platform sees record increases in both new customer accounts and transactions, it is clear that PayPal’s products are more important and relevant than ever before. The strength of our customer value proposition combined with the acceleration of digital payments adoption significantly accelerated in April, with increased demand and engagement.”
That report came out on May 6. The next day, PYPL stock popped by 14%.
In the second quarter, PayPal added 21.3 million NAA — an all-time company record. TPV for the quarter hit $222 billion, up 29% year-over-year. Revenue of $5.26 billion was up 22% YoY, and earnings per share of $1.07 blew past estimates. PYPL stock popped once again on news of this record quarter, continuing a growth streak that stretched from March’s market meltdown to September’s tech stock selloff.
Bottom Line for PayPal Stock
PayPal stock gets an “A” rating in Portfolio Grader. That’s not just based on the recent performance of PYPL — up 78% at this point in 2020, despite the hit it took in early September. PayPal was a company in the right place at the right time, poised to take advantage of the pandemic’s effect on cash. Even as the pandemic (hopefully) fades, the trend toward a cashless society is clear. As a leader in contactless and online payment, PayPal is going to continue to reap the rewards of this trend. And so are its shareholders.
Currently trading at around $192, PYPL stock remains well below its early September level, when it was within reach of $211. Now’s the time to make a move if you want to add this high-growth stock to your portfolio.
— Louis Navellier
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Source: Investor Place