How Venmo Will Boost PayPal's Growth

PayPal Holdings Inc. (NASDAQ: PYPL) is having a great run. At the start of this year, PayPal's stock was trading around $85, and it climbed to $118 per share on June 20. That's roughly a 35% increase. Over that same period of time, the S&P 500 only gained 4%.

The stock has stalled recently with the announcement that COO Bill Ready is stepping down at the end of the year. Although, Ready will help PayPal transition into new leadership. Plus, with expanding e-commerce, PayPal's stock should continue to climb.

PayPal E-Commerce

Founded in 1998, PayPal was the digital payment pioneer. The company has profited from e-commerce since the dawn of the Internet. Growth has been steady since PayPal went public again in 2015. But recently, PayPal's stock has grown exponentially thanks to an uptick in e-commerce markets. E-commerce was estimated to be a $2.8 trillion market in 2018, but analysts predict the market will grow to $4.9 trillion by 2021.

PayPal is profiting on that growth in several ways. Through the first quarter of 2019, the total amount of PayPal transactions increased 22% to $161 billion. The total number of transactions jumped by 28% to 2.8 billion. And the total number of PayPal customer accounts grew 15% to reach 277 million. All of these numbers represent PayPal's growing customer engagement. It's a good sign for PayPal investors.

Venmo Person-to-Person Payments

PayPal acquired Venmo in 2013. This presented a new revenue opportunity. Person-to-person payments are growing in popularity, especially among younger demographics. There are over 40 million active Venmo accounts and growing.

Venmo handled $7.5 billion in transactions in 2015. But in the first quarter of 2019, Venmo completed $21 billion in total payment volume. That's nearly a 300% increase. As of Q1 2019, the app has an annual revenue of $300 million. Venmo makes money through instant transfer fees, the Venmo Card, and Pay with Venmo. Although, PayPal doesn't have any plans to expand its Venmo monetization. PayPal wants to stick to its bread and butter, digital payment processing. Venmo is icing on the cake.

PayPal Growth Opportunities

PayPal is finding new ways to grow. The company partnered with Instagram and MercadoLibre to bring in more revenue. In April, PayPal made its first investment in a blockchain company. PayPal's CFO said the company is hesitant about getting involved with cryptocurrency, but that may change. Last year, PayPal filed a patent to increase the speed of cryptocurrency payments.

Venmo remains a promising profit machine. PayPal's recent stock growth could be related to Venmo's surging popularity. Venmo has 40 million users, but that number only represents 15% of the adult population in the United States. Integration with Grubhub, Uber, Fandango, Hulu, and other platforms will increase the amount of accounts. The more Venmo is built into different platforms, the more PayPal's stock will benefit.

Venmo's $300 million of annual revenue is dwarfed by PayPal's $18 billion. But Venmo has more potential to expand and monetize. Management will be cautious about how they scale those efforts. "We are being wise and thoughtful about monetizing Venmo," CEO Dan Schulman said. "We want to make sure we aren't putting the wrong metrics on it."

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