Tag Archives: PYPL

PayPal Looks to the Underbanked Population for User Growth

PayPal Holdings (NASDAQ:PYPL) is releasing new products aimed at serving the large, and often ignored, “underbanked” segment of the population. In conjunction with Mastercard (NYSE:MA), PayPal has introduced the PayPal Cash Mastercard in the U.S., the company’s version of a prepaid card, with no monthly fees, no account minimum, and no credit check needed to open an account.

The card allows users to access their PayPal account by using the card anywhere Mastercard is accepted, whether online or at point-of-sale locations. Cardholders will also be able to withdraw their money from ATMs, including 25,000 free MoneyPass ATMs within the U.S.

PayPal users can add money to their accounts via a direct deposit from their employer, deposit a check through the PayPal app on their phone, or deposit cash at 20,000 convenience and drug store locations nationwide. Users who take advantage of these features will also receive FDIC insurance from one of PayPal’s financial institution partners.

The front of PayPal corporate headquarters.

PayPal sees a huge market opportunity by providing millions of underbanked Americans with modern financial services. Image source: PayPal Holdings Inc.

A real need…

The numbers are simply staggering: According to a 2014 report, 68 million Americans, representing about 1 in every 4 households, either did not have a bank account or were forced to use expensive payday-loan and cash-fronting services to make ends meet. As the report from the U.S. Office of Inspector General described these people, “They are an economically diverse mix of working- and middle-class families, poor and unemployed people … young people, immigrants, and others who are trying to make it paycheck to paycheck.” These constraints not only worsen the living conditions of the underbanked, but also work to hold back the rest of the economy, keeping millions from unlocking their full economic potential.

Obviously, this not just an American problem. In 2014, the World Bank estimated that about 38% of the world’s adult population, approximately 2 billion adults, did not have a proper bank account. While that number has since dropped, it is still high.

…and a profitable opportunity

PayPal management assures shareholders this isn’t a charitable effort, but one that will offer the company the opportunity to produce profits while helping those left behind by the global financial system. In the company’s first-quarter conference call, COO Bill Ready made this clear when asked a question about the economics of offering these types of financial services:

We’ve had some products in market for a while that give us exposure to how these products are 1) used by customers and 2) what those mean to us financially both prepaid cards … merchant debit cards, things like that. And so there’s no material difference in the way we would look to go monetize those customers, and we’ve also had things for the underserved, such as being a little walk-in to a retail location … and load cash onto a PayPal account so somebody in the underserved or unbanked community could participate in the digital economy. We’ve had exposure to those things and we don’t see this as being any material difference in the way we would monetize on those customers versus how we monetize across the rest of our business.

CEO Dan Schulman added that the money the company earns from its new PayPal Cash Mastercard is from “transactions that occur at merchants just like we do typically.” So not only is PayPal bringing more people into the digital economy, it also stands to gain from doing so.

A move into banking?

Some might see these moves by PayPal and wonder if the company is contemplating a transition to becoming a bank. The signs seemingly add up. PayPal is offering more and more services that traditional banks do such as direct deposits, ATM cards, and FDIC insurance. Not to mention, fellow fintech company Square applied for a bank charter late last year.

Schulman was quick to squash this idea, saying, “So first of all, we firmly believe as a company that everyone should have access to affordable, convenient, secure, and low-cost financial services … And I think what we are trying to do is not try to compete or replace what’s going on with banks but work with the financial system to fill in the gaps in the current system so that everyone can afford the opportunities that the digital economy is extending.”

At the end of the day, PayPal is helping improve the lives of millions of Americans and, later, potentially billions of global citizens by providing modern financial services. The fact that it can do this bydoing exactly what it should as a public company — looking for new market opportunities to increase its value to shareholders– is only the icing on the cake.

Chipotle Has Staged a Huge Comeback, But It’s Time to Sell

Wednesday was a great day for earnings. Companies ranging from Facebook (NASDAQ:FB) to Advanced Micro Devices (NASDAQ:AMD) to Paypal (NASDAQ:PYPL) all reported really strong quarterly numbers. Their stocks jumped as a result, with PYPL advancing 3%, FB jumping 9% and AMD jumping 15% as of this writing.

CMG, too, reported first-quarter numbers after the bell on Wednesday afternoon. And all of those aforementioned post-earnings rips pale in comparison to the move made by Chipotle Mexican Grill, Inc. (NASDAQ:CMG) after its most recent earnings report — 23%!

The numbers came in way above expectations, with comparable sales growth and margins improving much more quickly than anticipated. Guidance was also strong.

On the conference call, commentary from management was bullish. Newly minted CEO Brian Niccol laid out a promising turnaround plan. Analysts proceeded to upgrade the stock.

Altogether, Chipotle’s Q1 bonanza led to a big pop in CMG stock. As of this writing, Chipotle stock is up nearly 25% on the day to above $420.

But even that move doesn’t put the CMG rebound in context. Back in early February, CMG was a $250 stock. Then the company hired Brian Niccol as the new CEO. The stock jumped. Bulls gained control.

Now, the company just reported robust first-quarter numbers. The stock is jumping again. And the bulls are running amok.

With CMG stock up 70% over the past several months and the bulls running amok, I think now is the time to sell. I continue to peg the fair value of Chipotle stock at $360. Thus, up here at $420, CMG stock isn’t supported by much outside of investor euphoria.

Eventually, that euphoria will die down. And CMG stock will drop.

Here’s a deeper look:

Great Quarter Paves Turnaround Path

Chipotle’s quarter was much better than expected, and it does show signs that the new turnaround under Niccol is underway.

Comparable sales rose 2.2% in the quarter, versus expectations for a 1.3% rise. Restaurant level operating margins improved to 19.5% versus 17.7% a year ago. Food costs fell back 140 basis points. Earnings continued on their rebound trend.

Better yet, management guided for this low single-digit comparable sales growth trend to persist over the next three quarters.

But the 2.2% first-quarter gain came against a 17.8% lap. In the second quarter, the lap falls to 8.1%. They fall to below 1% in the back half of the year.

In other words, comparables get easier as the year progresses. Thus, it is pretty likely that comparable sales growth actually heads higher for the remainder of the year from this quarter’s 2.2% base. If so, that would show that the CMG turnaround is in full swing.

Powering that sales turnaround will be a series of strategic initiatives put in place by Niccol. Those initiatives include an enhanced digital experience, a bigger focus on delivery, multiple menu innovations, and restaurant design improvements. Management is also doubling down on marketing in an attempt to make Chipotle cool again in the eyes of millennial consumers.

Those are the right steps to take. Comparable sales growth will improve over the next several quarters and years. Margins will track higher. Unit growth will remain strong. And earnings will get back to the $20-plus per share range.

But Chipotle Stock Is Overvalued Here

I’m all in on the CMG turnaround. It is working, and things will only get better from here.

But Chipotle isn’t marching towards world domination. The QSR space remains competitive. Instead, CMG is just marching towards getting better.

Over the next several years, revenue growth will likely be around 8% per year, driven by low to mid-single-digit comparable sales growth and robust unit expansion. Operating margins won’t get back to their peak 17% levels thanks to higher labor costs, but 15% margins seem achievable in 5 years. That combination of 8% revenue growth and 15% margins puts revenues and operating profits at $6.6 billion and $990 million in 5 years, respectively.

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Taking out 28% for taxes and dividing by a presumably reduced share count of 27 million, that equates to roughly $26.30 in earnings per share in five years. A market-average growth multiple of 20-times forward earnings on that implies a four-year forward price target of just over $525. Discounted back by 10% per year, that equates to a present value of $360.

Bottom Line on CMG Stock

The Chipotle turnaround everyone has waited so long for is finally here. But at $420, CMG stock is supported more by turnaround euphoria than turnaround fundamentals.

As such, once the euphoria dies down (and it inevitably will), CMG stock will drop.

I was a buyer below $270. I was a bull at $320. And now I’m a seller and a bear at $420.

As of this writing, Luke Lango was long

Dont Worry: The Square Inc Stock Rally Is the Real Deal

In today’s market, Square Inc (NYSE:SQ) is an anomaly: a technology firm that’s performing very well. On a year-to-date basis, Square stock is up nearly 42%, a resounding triumph amid a sea of disappointment. In contrast, competitors in the payment apps industry, such as Paypal Holdings Inc (NASDAQ:PYPL) and Apple Inc. (NASDAQ:AAPL), are decidedly muted.

Naturally, investors wonder if such momentum can last. I’m cautiously optimistic that it will. Unlike Apple, which has multiple and disparate businesses, SQ stock is a substantially more focused investment. And while PayPal is the dominant player in the online payment app arena, Square has the edge in providing a comprehensive solution for small businesses.

Of course, I don’t want to discount the pain in the broader markets, which has negatively impacted Square stock. For instance, the entire tech sector softened from mid-March due to several pessimistic catalysts, most notably the Tesla Inc (NASDAQ:TSLA) and Uber driverless technology controversies. In Square’s case, shares are down nearly 15% since the March 20 close.

At the same time, investors pushed up SQ stock for a reason. In fact, every indicator existed to run away from the markets, even from solid names. That just didn’t happen for SQ, which tells me that the positives outweigh the negatives.

Importantly, it’s not speculative optimism after which Wall Street chases. Small business sentiment is one of the bright spots this year, with entrepreneurs expecting more revenues and growth opportunities. Also, they’re reporting less difficulty in obtaining financing.

Naturally, this rising trend is a big boost for Square stock. But I’m even more intrigued with the finer details.

Square Stock Deserves Its Winning Ways

As I mentioned previously, the biggest advantage to using Square is its comprehensive platform. For signing up, you get a free credit card reader, which makes in-person transactions a snap. Along with that, you receive inventory management programs, as well as other administrative applications. It’s easily the best choice if you run a traditional business.

While rival PayPal maintains the edge for online businesses, the reality is that older generations are more entrepreneurial. small business owner demographics, Square stockinvestorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-768×487.jpg 768w, investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-200×127.jpg 200w, investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-400×254.jpg 400w, investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-116×74.jpg 116w,https://investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-100×63.jpg 100w, investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-197×125.jpg 197w, investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-79×50.jpg 79w, investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock-78×49.jpg 78w, investorplace.com/wp-content/uploads/2018/04/business-owners-demographic-Square-stock.jpg 956w” sizes=”(max-width: 300px) 100vw, 300px” />Sure, the hoodie-wearing hipster is the commonly portrayed image of the modern business owner. But the actual statistics state that 33% of small business owners are between 50 to 59 years old. Hoodie-wearers, or those between 18 and 29, represent a mere 4%.

It’s not much of a stretch to assume that older business owners prefer SQ. After all, these are folks that actually want to talk to their customers – not text them emojis. Square has the tools, comprehensiveness, and simplicity that most small entrepreneurs crave. We shouldn’t be surprised, then, how dominant Square stock is in the markets.

Also unsurprising is that in-person or traditional businesses are rapidly adopting mobile payment apps. According to an October 2017 survey, small business owners were more likely to integrate in-person mobile payments than they were to integrate online payment processing platforms.

This trend contradicts the common perception that companies are exclusively focusing on the online experience. Since most small business owners are older, Square has a much more viable market than analysts give them credit for. Again, chalk that up as a win for SQ stock.

Technicals Confirm the Fundamentals

Sometimes, we encounter situations where a fundamentally sound company experiences market distress. Perhaps investors haven’t quite digested the organization’s true potential, and share prices lag as a result. This is not at all the case with SQ stock.

Since the early summer of 2016, SQ has formed a consistently rising bullish trend channel. In addition, the 50 day moving average has supported the overall price action. I expect this trend to hold up, especially because the fundamentals are so strong.

With that said, my main caveat is the broader market weakness. It could continue to pressure even solid companies with great fundamentals, which is why I’m not completely gung-ho.

Ultimately, though, the longer-term picture is what you want to focus on. Consider initiating a small position in Square stock now, and start building up should prices decline. In a year or two from now, you’ll be glad you did.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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