With digital currency more widely accepted than ever before, it’s truly only a matter of time before the companies involved in this industry experience huge market growth. Such was the case of PayPal, one of the most popular online money-transferring services.
For the week of October 16th, the market value for PayPal beat out American Express. Not only that, but Goldman Sachs Group Inc. and Morgan Stanley are also at risk of being usurped by PayPal.
Essentially, two credit giants were shown up by an online debit card. How did this happen?
First, a little background on the company itself. PayPal was created by tech mogul Elon Musk with the help of Peter Thiel, Max Levchin, Luke Nosek, and Ken Howery back in 1998. Today, its CEO is Dan Shulman, and its chairman is John Donahue.
The premise of PayPal is to act as an online platform for receiving or sending money. Users connect their bank accounts to PayPal, so if that if they receive money there, they can transfer it directly to their account with no fees. Users can also keep a PayPal balance and pay for things through PayPal itself.
If users want to send money, rather than go through their bank’s online system to do so, they can just input the email address of the recipient into PayPal. As long as both users have PayPal accounts, the transfer goes through, again with no charge to either party.
Commercial businesses, auction sites, and online vendors favor PayPal a lot these days, despite the fact that there are sometimes fees associated with these transactions.
eBay, the online bidding company, took advantage of the 2002 public offering of PayPal by snatching it up. More than a decade later, eBay allowed PayPal to become its own independent company.
With the ever-expanding growth of digital currency, PayPal has had a remarkable 2017. Between its mobile money transfers and e-commerce payments, the company’s value has risen to the point where it could have bigger market value than American Express as well.
As of this writing, there’s an $82.1 billion market cap for American Express and an $83 billion market cap for PayPal, according to The Wall Street Journal. This may only be a subtle difference, but it’s enough to make PayPal’s advancement quite newsworthy.
Of course, the company will still have a bit of work to do if it wants to get the edge over Goldman Sachs or Morgan Stanley. There was a $92.6 billion market cap for Goldman Sachs and an $88.7 billion market cap for Morgan Stanley.
PayPal continues to diversify, spreading Skype through its Microsoft Corp. agreement this summer. The company also has 32 times forward earnings during trades. Compare that to the 15 times forward earnings of American Express, the 29 times forward earnings of MasterCard Inc., and the 27 times forward earnings of Visa.
This has all undoubtedly contributed to PayPal’s 65+ percent shares. The competition hasn’t fared quite as well, with a more than two percent drop for Goldman Sachs, a subtle 11 percent increase for Morgan Stanley, and a 24 percent increase for American Express.
In more good news for PayPal, this week, the company proudly announced a deal with Venmo, a similar service that allows users to transfer and receive funds using mobile devices. The latter company, a relatively recent invention, has a very similar premise to PayPal, so it makes sense for PayPal to thin out the competition.
Under this new deal, PayPal users can sync their Venmo accounts as another means of payment. Those with Venmo accounts can also choose this payment option for PayPal-accepted retailers. This opens the possibilities for Venmo accountholders, who admittedly didn’t have nearly as many shopping options as PayPal users do.
PayPal had began with limited Venmo functionality in 2016, but with this full-fledged deal, users of both platforms can expect more.
By the end of this week, on October 20th, it will be time for a quarterly earnings report for the above-mentioned companies. PayPal’s sudden increase in market value has thrown some of its competition for a loop, although Morgan Stanley stays confident.
“When I talk to bulls, they’re in the nothing-can-go-wrong camp because it’s the only way to justify the valuation,” explained Autonomous Research analyst Craig Maurer.
As for what shows up in PayPal’s quarterly earnings report, analysts will have to take a wait-and-see approach. For this week at least, though, it’s a good time to have some stocks in PayPal.
Regards,
Ethan Warrick
Editor
Wealth Authority