Fundamental Analysis Paypal Holdings, Inc. PYPL
PayPal Holdings, Inc. provides a technology platform to enable digital and mobile payments. The Company offers online payment solutions to the customers and merchants worldwide.
PayPal’s business is very simple and has two dimensions to grow:
- more customer accounts and
- more transaction volume per account
The company already has almost 200 million users and benefits from the network effect of its large user base.
To increase the user adaptation and the transaction volume, PayPal relies on organic growth and implements following main strategies:
- Partnering with banks and credit card issuers, such as Visa, Mastercard, and Citigroup which also enables PayPal to grow globally
- being early in adopting of new innovations: i. g.: from Digital Wallet to Mobile Wallet to No Wallet which means offering consumers to make payments without having to rely on cash or plastic cards but using mobile devices
- offering customers and merchants all channels, all devices and all methods of payments.
“The digitization of money, the rapid proliferation of internet access and, of course, mobile phones have created the perfect conditions to make it easier and cheaper to save, spend, give and borrow,” Greg Fisher, VP, Head of Global Brand Marketing at PayPal
PayPal uses two-sided platform which connects merchants and consumers. The PayPal’s platform provides several competitive advantages which fuel its organic growth:
– collectings customers data and gaining valuable insights into customer behavior
– scalability, global scale allows driving organic growth and makes the company more profitable
– brand, well-recognized and trusted brand
– Risk Management, to keep the customers safer and to process legitimate transactions around the world while minimizing illegal, high-risk, or fraudulent transactions.
PayPal’s strongest competitive advantage is the network effect of its services. In addition to that, collected customers data and the company’s trusted brand are not easy to replicate by competition. Paypal continuously widens its economic moat which is supported by growing user base and the company’s innovations.
PayPal has to establish partnerships to avoid long-term risk of competition. If the Company’s partnerships fail then PayPal will face tough competition.
(1) PayPal continuously widens its economic moat.
(2) The Company’s business has a lot of room to grow.
(3) PayPal’s partnerships are very important protection; without them, an investment in PayPal would be very risky.
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