PayPal Holdings Inc. (PYPL, Financial) is one of the youngest companies in the credit services industry, but has experienced the most significant growth in the last 10 years. The stranglehold Visa (V, Financial) and Mastercard (MA, Financial) had on the industry was never meant to be broken, but then PayPal used technology and some creative solutions to address problems that were not answered by the big boys, and is now reaping the rewards.
Between 2012 and 2016, PayPal’s annual revenue grew from $5.66 billion to $10.84 billion, while industry leader Visa grew from $10.42 billion to $15.08 billion. The company nearly matched Visa’s revenue expansion during this period, suggesting it is not only a strong player in the industry, but a company that has the potential to beat Visa at its own game.
PayPal’s total payment volume (TPV) has increased from $63 billion in the first quarter of 2015 to $99 billion in the first quarter of 2017. Although its transaction volume is dwarfed when compared to Visa and Mastercard, PayPal is growing at a steady clip.
Active user accounts have increased from 165 million to 203 million during this period. The best part is user accounts have grown sequentially over the last two years, a clear indication of demand for PayPal’s services. More users in the fold brings more merchants to the fold.
PayPal has a lot of momentum behind it. As long as the number of active user accounts continues to grow, the company will keep its double-digit growth rate intact. With 16 million merchant accounts at the end of first quarter of 2017, 2 million more than the first quarter of 2016, the company's biggest strength is merchant services. The growth in merchant accounts allowed merchant services volume to grow 30% during the quarter, while mobile volume grew 51%.
PayPal has several metrics working in its favor, and there is enough momentum for the company to keep driving its double-digit growth well into 2018. PayPal is trading at more than five times sales as the stock price has shot up by more than 40% over the last 12 months. It is a great company with a great product, but the price point does not allow much room for error. Stay patient and continue adding to your position because PayPal will continue to grow for many more years.
Disclosure: I have no positions in the stock mentioned above and no intention of initiating a position in the next 72 hours.
