February 22nd, 2021 | 09:23 CET
PayPal, Upco International, Square - Digital Payments: Continuing disruptive potential!
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"[...] The mere fact that we have to write off around EUR 5 million shows that mistakes were made. We have to admit this quite openly to ourselves. [...]" André Kolbinger, CEO, Smartbroker Holding AG
PAYPAL HOLDINGS INC - The sky is the limit
PayPal Holdings is one of the major global providers of online payment services. The Company enables individuals and commercial users to secure payments through merchant websites and mobile payment devices.
Unsurprisingly, the Group is a big profiteer in online trading, which just gained momentum again during the pandemic. The Group released its numbers earlier this month and showed that the number of active accounts increased by about a quarter to 377 million. In total, the Company generated a revenue of USD 21.5 billion. Profit increased by 70% to USD 4.2 billion. With a market capitalization of USD 336 billion, the valuation is anything but moderate. Still, it is put into perspective because of even more highly valued competitors and also in comparison with the Company's growth targets.
Paypal wants to triple the transaction volume via the platform to USD 2.8 trillion by the end of 2025 and increase revenue to USD 50 billion. Growth drivers are to be new functionalities of the app in particular. These are to include cryptocurrency trading, the ability to trade stocks, and the management of overnight deposit accounts.
UPCO INTERNATIONAL INC - UpcoPay in the spotlight
Founded in 2014 and headquartered in Vancouver and New York City, the Company operates in two business segments: telecommunications and digital services. In its core business, Upco operates as a licensed global telecom carrier in the international VoIP (Voice over IP) wholesale business - primarily in niche markets. The second pillar comprises "digital services."
In particular, the latter area created some fantasy with UpcoPay, a proprietary blockchain-based solution for payment services, and triggered an impressive share price increase in the last week. With a corporate announcement last week, the Company reported the departure of Sebastiano Massimo Galantucci from the Board of Directors after only 9 months in office. This announcement is unusual too as it is just before the publication of the annual results and the holding of the Annual General Meeting. The Company also confirmed at this time the high strategic importance of UpcoPay and its marketing in Europe. With this secure and convenient solution, direct payments can be made between individuals and between individuals and merchants.
The core of the investment case is the potential associated with UpcoPay and the transformation from an existing customer base into a new application. Central to this is the proof-of-concept, which the Company says will be delivered in Europe this year.
SQUARE INC - everything is relative
The US fintech Company Square, Inc. aims to establish an ecosystem for payments and transactions for both the commercial sector (sellers) and private customers. The Group will report tomorrow on the results of the past fiscal year and formulate operational goals.
The Cash App solution showed strong growth in recent quarters. The platform also allows users to trade and store bitcoin, which has significantly increased business development momentum in Q4 and should continue in the current year. It is from this high-margin and highly scalable business that the fantasy for the stock comes. Market experts estimate the relevant market size at around USD 40 billion. Even if the seller solutions' corresponding market should be three times as large, significantly lower margins are achieved here.
The development of scalable digital ecosystems delights stock market investors. They are prepared to pay many times the revenue or profit for this - if it is available at all. At a current valuation of USD 125 billion, a lot of growth is already priced into the stock. In the past year, the Company is likely to have made a loss of around USD 90 million. If everything goes well, the Company can then post a profit of USD 50 million next year. Value investors will certainly frown at a sales multiple of 10, and a 2021 P/E ratio of over 2,000 (!) is likely to cause more stomachaches. But the stock market values the future. Whether investors are currently paying too much for this will be seen in time.
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