Trading lessons, PayPal Stock

PayPal Holdings, Inc. is an American company operating a worldwide online payments system that supports online money transfers and serves as an electronic alternative to traditional paper methods like checks and money orders.

We have all seen the amazing rise of Tesla and many other tech stocks this year, times where we haven’t got anywhere else to invest our money and expect a decent return and being lock indoors using their products.

One stock that has caught our eye is PayPal. The stock is up exactly 100% year to date.

Two of the biggest factors, as to most analysts’ expectations that the stock will continue to rise in 2021 is the cryptocurrency component and the changes in consumer behavior, especially from the millennials.

At the start of the month the company topped analyst views for Q3 earnings, with revenue also edging expectations. E-commerce was continuing to boom amid the Covid-19 pandemic.

However, the company did not provide preliminary guidance for fiscal 2021, which briefly spooked investors.

PayPal is still looking to innovate, with the stock getting boosted at the end of October on the news it has launched its own cryptocurrency service. San Jose, Calif.-based PayPal said customers will be able to use its online digital payment system to buy, sell and hold Bitcoin and other virtual coins. In addition, its customers will also be able to use cryptocurrencies to shop at the 26 million merchants on its network starting in early 2021, the company said. PayPal has 346 million active accounts

Surging prices of Bitcoin are not just fuelling gains for traders. The cryptocurrency could also lift revenue for payment apps like Square and PayPal that are getting a cut of Bitcoin transactions.

Mizuho Securities’ Dan Dolev raised his price target on PayPal Holdings stock (ticker: PYPL) to $290 from $270 on Monday. Bitcoin-related revenue could boost PayPal’s overall sales growth to 20% in 2021, above consensus estimates of 18.7%, he writes.

Nearly a fifth of PayPal customers, or 17%, have traded Bitcoin on its app, Dolev writes, based on a survey of 380 users. Bitcoin traders reported more than three times the usage of PayPal products and services than nontrade’s—maintaining higher cash balances, using PayPal’s debit card, and paying for goods with PayPal QR codes, he notes.

PayPal makes money off Bitcoin the same way its rival Square (SQ) does. Both companies buy the cryptocurrency from brokers and resell it to customers. Their profit comes from the “spread”—the exchange rate between what they pay for the currency and the price they display to traders. PayPal says it charges an estimated spread of 0.50%, but its total cut of transactions is murky. The company says that “we will not separately calculate or disclose the spread we earn on each transaction.”

PayPal users could also start paying transaction fees next year, according to the company’s disclosures.

Higher prices for Bitcoin may not directly lift revenue for PayPal. But bulk purchases by the payment apps could be lifting demand and supporting prices of the currency. And Dolev views higher prices as a tailwind. “More people want to trade it when prices go up,” he says. “The higher the price of a good, the more wiggle room one has to make a spread.”

Time to buy or trade?