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Here’s My Favorite Way To Play The $1.9 Trillion Global Payments Market

1 | By Michael A. Robinson

Don’t worry if you never heard of Nick Molnar because most investors haven’t.

And yet, the story of the young entrepreneur is impressive. At the ripe old age of 30, he’s become a billionaire.

Not bad for a guy who started his fintech firm just six years ago. Afterpay Ltd. provides installment-payment plans pitched as better alternatives to credit cards.

Here’s the thing. Molnar recently received a flattering profile in the prestigious Wall Street Journal. The paper seemed particularly impressed that Afterpay has added 1.6 million U.S. users.

I believe there are two problems with this story. First, the company is based in Australia and U.S. shares only trade over the counter, which sharply reduces institutional support.

Second, there’s a U.S. based fintech leader with more than 100 times as many users and that I believe is a much better investment.

It’s set to double in three years or less. And did I mention there’s a hot new catalyst?

A Legacy of Household Names

Now then, there’s no questions that the global payments market is massive. McKinsey & Co. values it as a cool $1.9 trillion.

So, on paper at least there’s plenty of room for an aggressive upstart like Afterpay.

But here’s the thing. Six years after its launch, the company is still losing money. In other words, investors are taking a chance that the Afterpay will turn the corner and start making real money.

That’s a lot to ask when there is a company that I have recommended several times that has great earnings growth and is crushing the broader marker.

The fact is, PayPal Holdings Inc. (PYPL) is one of the best players in the space. You don’t have to take my word for it.

The stock has gained 342% over the past five years. That’s more than six times the return of the benchmark S&P 500 during the period.

PayPal is an all-electronic payment processor for e-commerce websites, small businesses, and individuals looking to transfer money quickly and easily without the hassle of checks or money transfers.

For many of us, PayPal is probably most associated with online auction site eBay Inc. (EBAY), which owned PayPal from 2002 to 2014.

But with all due respect to Nick Molnar and his Afterpay, the original founders of PayPal are much more recognizable billionaires.

See, in 1998 Peter Thiel co-founded a company called Confinity. It first focused on secure software for handheld devices, before switching over to creating a “digital wallet” that would enable electronic payments.

Peter Thiel is now a billionaire, famous for being the first outside investor in Facebook Inc. (FB) in 2004. His early 10.2% investment turned $500,000 into more than $1 billion.

He also founded Palantir Technologies, the secretive Big Data firm whose first clients were U.S. intelligence agencies and the Department of Defense.

Back in 2000, Thiel’s Confinity merged with X.com, an online banking startup, and became PayPal.

While you may not have heard of X.com, chances are you’ve heard of its founder. It’s none other than Elon Musk, the billionaire behind Tesla Inc. (TSLA), SpaceX, The Boring Co., and other tech successes.

In short, you’d be hard-pressed to find a more impressive list of founders than PayPal’s.

Now, in 2002, PayPal went public and was quickly snatched up by eBay. The auction site quickly integrated PayPal into its online auction and e-commerce site, turning it into the default payment system for most of its users.

It was a very successful match, but by 2015 the two companies had conflicting goals. While eBay was struggling to claw back its position as the leading e-commerce site, PayPal could only grow by becoming the payment processor for the online vendors competing with eBay.

So in 2015, PayPal was spun off. Which brings us to the firm’s new catalyst…

Free At Last

When PayPal was first spun off from eBay, the two companies signed an agreement that meant PayPal would be the main payment processor for eBay for at least five years.

That deal expired on July 17. eBay had already announced that it would begin switching over to a Dutch payment processor back in 2018, which concerned many PayPal investors.

They needn’t have worried.

Since being spun off, PayPal has been on a roll. It’s acquired Bill Me Later (now PayPal Credit). It’s an online revolving credit alternative to credit cards that can be used on some of the biggest online merchants in the U.S.

We’re talking about the e-commerce sites of WalMart Inc. (WMT), The Home Depot Inc. (HD), Best Buy Co. Inc. (BBY), USPS, JetBlue Airways Corp. (JBLU), and many others.

PayPal has also partnered with Instagram to power the “Checkout with Instagram” feature that lets users make purchases in their Instagram feed.

In fact, PayPal’s stock went up 23% in the two years between eBay’s announcement that it was switching to a competitor and the end of 2019.

And this year, PayPal has surged 65% as Covid-19 lockdowns have made e-commerce and online money transfers more important than ever.

Over the last three years, PayPal has grown earnings per share by an average of 25%. At that rate, the stock should double in less than three years, and could double again in six.

The firm is set to announce earnings on July 29. If it misses, the stock may sell off.

But that could prove an opportune time to buy this winner on the dip.

Either way, this is the type of tech leader you can count on to build wealth for the long term.

But in the meantime, if you’re looking for an even more radical fintech innovation that has a history of turning broke college kids into millionaires, you can check it out right here.

Cheers and good investing,

Michael A. Robinson

One Response to Here’s My Favorite Way To Play The $1.9 Trillion Global Payments Market

  1. Richard Van Vreede says:

    I love your cowboy split strategy. Could you elaborate on where to set your sell stop after you have doubled down, i.e. made your second purchase? I think that I read once that you typically set it 20% below your adjusted cost. I would really love it if you detailed this in one of your market strategy articles. Thank you for all you do!

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