The COVID-19 pandemic accelerated the rise of contactless and digital payments driven by lifestyle changes. Nearly 82% of Americans have been using digital payments as of fiscal 2021. Digital payments have numerous perks, including faster processing, immediate settlement, increased security, convenience, and transparency. Globally, nearly 40 countries have real-time payments processing solutions, and more than 12 countries have announced their plans for adoption by 2023. The increase in the number of e-commerce industries, growing usage of smartphones with increased internet penetration, developments in mobile payment technology, and adoption of safe and secure payment gateways are the contributing factors to the growth of the digital payment industry.
According to a report by researchandmarkets.com, the global digital payment market is projected to reach $12.55 trillion by 2027, growing at a CAGR of 10.9%. As consumers are more inclined toward payment processes working as fast and efficiently as possible, the digital payments market is expected to boom in the long run. Further, businesses are increasingly adopting online payment systems to meet consumers' demands. The investors’ interest in the industry is evident from the ETFMG Prime Mobile Payments ETF’s (IPAY) 16.7% gains over the past month.
Given the backdrop, Wall Street analysts expect quality digital payments stocks like PayPal Holdings, Inc. (PYPL) and Affirm Holdings, Inc. (AFRM) to gain momentum in the coming months.
PayPal Holdings, Inc. (PYPL)
PYPL is a leading American digital payment company. It operates a technology platform that allows digital payments on behalf of consumers and merchants worldwide. PYPL offers payment solutions under the PayPal, PayPal Credit, Venmo, Xoom, Hyperwallet, Zettle, Honey, and Braintree names. The company operates in approximately 200 markets and 100 currencies to allow consumers to send and receive payments.
This week, PYPL introduced the new PayPal Cashback credit card issued by Synchrony. Customers earn unlimited cashback and rewards when shopping with PayPal with this new card. This new introduction is expected to boost the company’s revenue streams and extend its customer reach.
In the fiscal 2021 fourth quarter ended December 31, 2021, PYPL's total revenue increased 13.1% year-over-year to $6.92 billion. Its operating income improved 9% from the prior-year period to $1.05 billion. PYPL’s net income rose 3% year-over-year to $1.32 billion. The company's net income per share increased 2.8% from the year-ago value to $1.11.
The consensus revenue estimate of $6.41 billion for the fiscal 2022 first quarter ended March 2022 represents a growth of 6.3% from the same period in 2021. It’s no surprise that PYPL has surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock gained 14.2% over the past month and closed yesterday's trading session at $112.49.
Of the 41 Wall Street analysts that rated PYPL, 29 rated it Buy, 11 rated it Hold, while one rated it Sell. The 12-month median price target of $178.22 indicates a 58.4% potential upside. The price targets range from a low of $107.00 to a high of $245.00.
Affirm Holdings, Inc. (AFRM)
AFRM operates a digital and mobile-first commerce platform in the U.S. and Canada. The company’s platform includes payment solutions for consumers, commerce solutions for merchants, and a consumer-focused app. AFRM has more than 29,000 merchants integrated on its platform, and it covers small businesses, large enterprises, direct-to-consumer brands, and brick-and-mortar companies.
In January, AFRM launched two significant additions to its product suite; the Affirm SuperApp and Chrome browser extension. AFRM’s new SuperApp provides the best of shopping, payments, and financial services in one easy-to-use destination. The new Chrome browser extension allows consumers to use Affirm payment solutions at virtually any retailer’s website. These launches might boost the company’s revenues.
AFRM's total revenue increased 77% year-over-year to $361.01 million in the fiscal 2022 second quarter ended December 31, 2021. AFRM’s interest income improved 87.3% year-over-year to $138.36 million. The company’s cash and cash equivalents increased 75.1% over a six-month period to $2.57 billion as of December 31, 2021.
Analysts expect AFRM's revenue for the fiscal 2022 third quarter ended March 2022 to come in at $344 million, representing a 49.1% rise year-over-year. The company has an impressive earnings surprise history as it has surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of AFRM increased 11.8% over the past month. It closed yesterday's trading session at $40.87.
Of the 15 Wall Street analysts that rated AFRM, eight rated it Buy, six rated it Hold, while one rated it Sell. The 12-month median price target of $69.87 indicates a 71% potential upside. The price targets range from a low of $45.00 to a high of $125.00.
PYPL shares were trading at $113.48 per share on Thursday afternoon, up $0.99 (+0.88%). Year-to-date, PYPL has declined -39.82%, versus a -5.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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