Expect PayPal (NASDAQ: PYPL) to Carry Momentum into 2021

PayPal NASDAQ: PYPL shares have had an extraordinary 2020, more than doubling YTD. But it’s been a bumpy ride for shareholders over the past 3+ months, with shares quickly bouncing between around $175 and $215.

 PayPal shares plummeted nearly 9% on November 9, right after the vaccine news came out, but shares quickly recovered as investors realized: the future is cashless – and the vaccine won’t change that.

Now, after stalling out around $220 for a couple of weeks, PayPal shares have raced out to fresh all-time highs. Again.

The chart is hinting at another leg-up for PayPal, while the company’s performance can certainly support higher prices.

PayPal Maintained Momentum in Q3

PayPal reported its Q3 numbers around a month and a half ago, and the market reaction was… interesting. Shares dropped from around $187 to $179 in the first trading session after the release, as investors were concerned by a soft Q4 outlook and a lack of 2021 guidance. But over the following two sessions, PYPL jumped 25 points to around $204 a share.

The strong third-quarter certainly played a large role in the quick turnaround:

• Total payment volume (TPV) grew a record 36% yoy to $247 billion, which as PayPal pointed out, would equate to an annual run rate of almost $1 trillion. Moreover, PayPal’s TPV growth rate has been accelerating in 2020: it increased to 28% yoy in Q2 and 18% yoy in Q1.
• PayPal added 15.2 million net active accounts during Q3, its second-best result ever, next to its 21.3 million in Q2. Every quarter that PayPal welcomes 15-20 million users onto its platform, it further solidifies its status as an online payment industry leader.
• Venmo’s TPV was up 61% yoy to $44.3 billion. The platform now has 65 million users. Venmo has thrived in 2020 in the face of headwinds; the platform is largely used to split dinner bills and bar tabs – there haven’t been many of those in 2020.

I would have loved to see a stronger Q4 outlook, but it’s just one quarter. The lack of 2021 guidance, on the other hand, shouldn’t make you question PayPal’s 2021 prospects. On the Q3 earnings call, management explained:

“There continues to be significant variability in macro-related factors and we feel that providing guidance for that period right now would require a wider guidance range than we believe is constructive. Once we close out 2020, we'll be better positioned to provide our thoughts for 2021, which we will share in February when we report our full-year results.”

2021 Could Be Better Than Expected for PayPal

I’ll start by cautioning that PayPal has been setting records left and right in 2020: it will be a tough act to follow.

But I’m betting that 2021 growth isn’t going to slow much from 2020 levels. Most importantly, I think that when guidance is released in February, it’s going to be higher than the whisper numbers.

I like the momentum in total payment volume and net new active account growth. I like the growth from Venmo in a challenging environment.

But what has me really excited is cryptocurrency:

Two months ago, PayPal announced a new service that will allow users to buy and sell crypto directly from their PayPal accounts. And that’s just the start; PayPal is planning to give users the ability to make purchases with their crypto. The beauty is that merchants won’t have to accept crypto. PayPal will simply liquidate the cryptocurrency and send fiat currency to the merchants.

You may be wondering: What’s the benefit for users?

They will be able to keep their funds in crypto until the moment they want to buy something. If cryptocurrency continues to appreciate against fiat currency – with some bumps along the way – this would be a boon for crypto enthusiasts.

Look no further than Square NYSE: SQ to see how integrating crypto can work out for online payments companies: Bitcoin drove 10%+ gains for Square shareholders over the summer.

The Final Word

2021 is going to separate the wheat from the chaff in the e-commerce and online payments spaces. The vaccine will allow people to shop in person, and have the option of using more traditional payment methods – namely cash and credit cards. People will only continue to use cashless solutions if they are superior. PayPal fits the bill.

Bottom line: I expect PayPal to maintain its momentum – with the help of cryptocurrency.