Square vs PayPal. Two giant companies with a lot going for them. If you went back in time 30 years and stopped a guy on the street to tell him that he wouldn’t be carrying cash in his wallet in 2020 and 90% of the worlds transactions would be digital, he’d tell you that you were nuts.
But the future is now. Let’s take a look at these two and see what’s under the hood from a stock traders perspective.
PayPal Holdings, Inc. (PYPL) and Square, Inc. (SQ) are two of the largest players in the emerging fintech/payments industry, a $4.8 TRILLION global market in 2019. Square’s vision statement “We believe everyone should be able to participate and thrive in the economy” isn’t too far from PayPal’s “every person has the right to participate fully in the global economy, and that we have an obligation to empower people to exercise this right and improve financial health.”
Beyond the mission statements, in many ways the similarities become apparent. PayPal has a market cap of about $145 billion with $17.7 billion in sales last year, compared to Square’s $29 billion market cap and $4.7 billion in 2019 revenue.
PayPal has built itself primarily as a digital payment processor, while Square has focused on transactions with physical card swipes.
If you are a business, this is what you have to look at before you decide to go with one over the other. Check out our trading service for more trading information.
PayPal is Old School
PayPal is kind of the OG of fintech – initially founded in 1998, what became PayPal was actually a merger between Peter Theil’s “Confinity” and X.com, which was founded by Elon Musk.
Peter Theil and Elon Musk are probably the most famous of the “PayPal Mafia,” a group of entrepreneurs that were involved with PayPal in those early days and have been since been involved in an unbelievable number of tech startups.
I can remember using PayPal in college in the early 2000s – it was a household name almost from the very beginning of the company.
Square largely passed me by – the first time I can remember using it was in the summer of 2017 when I found out that the ice cream truck in my neighborhood had it; that discovery changed the whole trajectory of my summer!
Or at least the trajectory of my waistline that year…my habit of never carrying cash used to protect me from the perils of the ice cream man. Our trade room loves talking about things like Square vs PayPal.
The History of Square Vs PayPal
When it comes to timing, PayPal has been great. Considering that PayPal had an IPO in 2002, the market had bounced after the dot combust.
Shortly after its IPO it was then was acquired by E-Bay later that same year. In 2015, PayPal was spun back out of E-Bay and has been in the capable hands of CEO Dan Shulman ever since.
Shulman has had the top job at Priceline.com and Virgin Mobile. Then spent several years as the President of enterprise growth at American Express. Square was co-founded in 2009 by Jack Dorsey, who is still the CEO although he splits time at SQ with his role as CEO (and co-founder) of Twitter. When deciding on trading Square vs PayPal, make sure you’ve taken our courses.
PayPal Keeps On Growing
Should you trade PayPal vs Square? SQ had its IPO in 2015 – the same year PYPL was re-listed on the exchanges- and had its first full year profit in 2019 – $375 million in net income.
PayPal made about that much – $350 million – in 2010, and has consistently grown the business to $2.46 billion in FY19 net income.
Neither company pays a dividend, so you are expecting growth with either stock. SQ, as the younger company, is growing at a much faster rate than PYPL.
But is that already in the price? Square’s PE is a lofty 100.6 (on a rolling 12 month basis), considerably higher than the still high PE of 56.1 for PayPal.
Those high PE ratios imply a lot of expected growth in the years ahead for these stocks. Much of that growth is tied to the long-term secular growth trend in digital and mobile payments. Consumers want to move money fast, from anywhere, securely, and cheap.
PayPal has responded primarily by making acquisitions. They bought BrainTree, the owner of Venmo, in 2013. PayPal purchased iZettle, which has been called “the Square of Europe” in 2018, and announced a $4 billion deal to acquire the “discount discovery” platform Honey Sciences Corporation in late 2019.
Is Square Better Than PayPal?
When thinking in terms of Square vs PayPal is one better than the other? From a business owner standpoint, if you are taking payments in person, square seems to be the better choice. If your business is solely online, PayPal seems like way to go. From an investment standpoint, they each have their strengths, and it all comes down to the fundamentals.
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Square Is A Point-Of-Sales Beast
Square has built its business primarily by helping small businesses accept credit cards. And have built out several services from there including inventory management and point-of-sales systems.
It is also building out their Cash App business, which was started in… 2013 (yep – the same year PayPal bought Venmo). Cash App allows users to buy and sell Bitcoin and other cryptocurrencies, so it is bound to be popular with a certain part of the population. Check out our full list of trading apps.
PayPal was trading at all time highs before the pandemic took the whole market down; its stock price is now back to near those levels again.
SQ hasn’t fared quite so well – they were trading almost 20% below the all-time highs set in September of 2018 before the sell off and are still down over 20% from their February 2020 highs.
Looking to trade Square vs PayPal? Both companies have good things going for them. If you are an investor, you have to look forward and think about where each company is heading. If you are a user, you have to way out the features and benefits to you as a consumer.
Both companies will be reporting earnings on May 6th, after the market closes, for the first quarter of 2020. It will be interesting to hear how they are managing their businesses through these trying times while continuing to invest in future growth. There are also coopetitors to be looking at that haven’t yet fully matured. How will they impact this space? Stripe stock is one that comes to mind, with their expanding business model.