Both companies help businesses and consumers accept payments online and through mobile phones. Their broad financial products filled in gaps left by traditional banks, and this drove them to market caps well into the billions.
Most analysts agree FinTech is a solid investment for the next decade, pitting PayPal vs Square stock, with both at Buy ratings.
Let’s dive into these competing FinTech companies to determine what each is doing right and wrong. We’ll check out their assets, revenues, and roadmaps to determine what investors have to look forward to. If you’re deciding between investing in one of these two companies, this is the guide for you, starting with PayPal.
Is PayPal Stock A Buy?
Most analysts believe PayPal stock is undervalued below $220 and see massive growth potential in the market, despite the $225 billion+ market cap.
PayPal’s primary revenue source is transaction fees on every transaction processed through its payment platform. A large portion of these transactions come from eBay, although the partnership agreement between the two is now expired.
However, PayPal spent the 2010s aggressively expanding its reach into stores, both online and off, including buying coupon browser extension Honey for $4 billion in 2019. It also owns Venmo.
It entered 2020 with $17.77 billion in revenue for the previous year, and then the coronavirus pandemic hit. Early reports were bearish across the market, and even PayPal lowered its expectations after a slow first quarter. By April, it was clear that PayPal accounts and transactions were surging, causing share prices to more than double.
Although the economy is heading for recession in 2021, PayPal is a foundational part of giving financial access to the unbanked and underbanked populations.
There are an estimated 55 million adults without proper access to FDIC-insured banking services. PayPal’s dedication to online payments made it more relevant than ever in 2020, and it’s only going to continue growing its offerings and footprint.
Should You Invest In Square?
While PayPal does have business services, Square found a niche in building its own mobile payment services at the dawn of the smartphone era. This helped small businesses turn tablets and cell phones into mobile point-of-sale terminals.
It also owns a ubiquitous hit in Cash App, the popular money-sending app that gets name checked throughout popular culture.
By June 2020, Square stock hit an all-time high and just seems to keep growing, almost doubling its lowest value for the year in March.
And while it continues to climb, analysts get split as to where the exact value of this company is. Its over $70 billion market cap is held up by about $5 billion in annual revenue for the year, and it’s hitting many of the same markets as PayPal and Venmo.
Still expect Square to grow, but it’s unclear how well-positioned it is for the coming economic conditions. As businesses continue to shutter, more competitors (like the bank-owned Zelle) are filling into the market, and there’s a chance Square may already trade in the range it will for the next five years. However, there’s still plenty of growth potential as it continues to move forward.
Risks Of Buying PayPal Stock
Even though it’s flying high, PayPal isn’t without obstacles. Looming regulations in the European Union, for example, are threatening to stop the region’s reliance on American financial technology.
There’s also the problem of eBay inevitably launching its own payment service and migrating its 182 million users off PayPal.
The biggest elephant in the room for PayPal is Amazon, which has historically refused to accept payments from its network.
While digital and mobile payments are the future of FinTech, it doesn’t guarantee PayPal anything. It could go stagnant or fail to reach its $220 goal.
Dangers Of Buying Square
Square has plenty of competition too, especially from PayPal. Not only does the company’s Cash App compete with Venmo, but PayPal Here and other business-focused services are working to build a competing POS network. There’s also heavy competition from Shopify, Clover, Intuit, and more.
The choice between Square and PayPal extends from their respective stocks to their product offerings, and in this respect, Square is a smaller company that carries more inherent risks.
Small business got hit hard in 2020, and this is the primary market using many of Square’s products. It needs to continue fueling growth while the rest of the economy shrinks, and that’s not easy. If it doesn’t make the right moves over the next few years, Square may find itself overrun by a competitor.
Square Vs PayPal Stock: The Bottom Line
Both PayPal and Square are riding highs in the aftermath of the 2020 coronavirus outbreak. The shift to remote work, virtual learning, and ordering delivery opened the door for both fintech companies to increase revenue and open new income streams. Investors are abuzz that they may be undervalued as well, although the better Buy is PayPal.
Regardless of which company you choose, the market for online and mobile payments is only continuing to grow, and that means there’s opportunity for investors to make a lot of money while the rest of the economy slides downward next year.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.