![]() Venmo currently accounts for 18% of PayPal's revenue. We see Apple Pay as more of a competitor to Venmo, especially replacing cash/bank transfers between individuals. Merchants using Apple Pay also still have to pay the overheads they have to pay to card operators such as Amex and Visa. Unlike PayPal, which works on all devices and operating platforms. Despite Apple Pay being a great service, retailers offering Apple Pay only target the population of people who have Apple products. ![]() However, in the fourth quarter of 2022, Apple's global smartphone market share was 24.1%. First, Apple Pay operates within the Apple ecosystem and is a great way for Apple to protect its moat and provide more value to users of the Apple ecosystem. Some will point to Apple Pay as a direct competitor to PayPal, but there are certainly differences between the two. We think PayPal's dominant market share is mostly due to the fact that people have trusted PayPal for more than 20 years and still find it the easiest, fastest and most versatile way to transfer money and make online purchases. We ask ourselves: why is it that PayPal's fundamentals have remained robust, while other players like Apple Pay have recently captured a huge market share? Apple Pay is reportedly already processing more than $6T in transactions per year, far outpacing PayPal and even Mastercard & Amex. On an annual basis, PayPal processed $1.42T in volume in the first quarter, and it is likely that this will continue even without user growth, as PayPal and the companies they represent are able to pass on the cost of inflation over time.Ī company in the payments industry that is still processing $1.42T in volume and growing also does not sound like a company on the verge of bankruptcy in our eyes. In 2022, PayPal alone processed a staggering total payment volume of $1.36 trillion, rivaling the largest credit card providers such as Mastercard ( MA) and Visa ( V), which have been around since the 1960s, and Amex ( AXP), which was founded in the 1800s. And yet, despite the growth of other payment providers, PayPal has continued to grow in transaction volume, customer numbers and profits. Shopify Payments has been around since 2013, Google Pay for more than 5 years and Apple Pay since 2014. ![]() First, it is important to note that these payment method alternatives have not just been around since last year, either. That said, we currently note that other payment gateways such as Stripe, Shop Pay ( SHOP), Google Pay ( GOOG) ( GOOGL) and Apple Pay ( AAPL) are the main perceived threats to PayPal's business model. Since competition is top-of-mind when it comes to investors thinking about investing in PayPal, especially the growth of Apple Pay, we discuss our take on why the market may be too bearish on the company. We will quantify these risks, outline what an extreme downside scenario might look like and why we think the stock could generate investors more than an annual 18% IRR over the next 10 years. ![]() Therefore, we will address the reasons why investors may be too bearish on PayPal, overestimating competitive threats and overstating temporary headwinds while the company is fully focused on returning capital to shareholders and maximizing PayPal's efficiency. Despite a strong start to the year, it is currently down 11.47% YTD, compared to the S&P 500 which is up 10.73%. Let's face it: it has been a difficult year for PayPal ( NASDAQ: PYPL), to say the least. Prostock-Studio/iStock via Getty Images Investment Thesis ![]()
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