It’s hard to believe, but 2019 is halfway over already. Even though the first half of the year has been turbulent at times, the trade war persists, there’s lots of uncertainty surrounding what the Federal Reserve will do next, and tensions with Iran are heating up, the stock market is knocking on the door of new record highs.
Despite the overall high stock prices, there are still some attractive opportunities to be found. We asked five of our top contributors what stocks look most interesting to them, and here’s why they think…
Just scratching the surface of its potential
Matt Frankel, CFP (PayPal): One stock that popped onto my radar recently is payments giant PayPal, which has had a tremendous year so far. The stock is up by about 35% so far in 2019, but it recently pulled back after it was announced that COO Bill Ready plans to leave the company at the end of this year.
To be fair, it’s understandable that the market wouldn’t be thrilled about this news. After all, Ready had been expected to play a key role in the monetization of the ultra-popular Venmo platform going forward. Ready had also been a driving force behind PayPal’s strategic move to turn the company’s largest competitors, such as Visa, Mastercard, Apple, and others, into partners.
However, keep in mind that Ready is staying on for another six months in order to ensure a smooth transition of leadership. Plus, it’s important not to lose sight of PayPal’s long-term potential, no matter who is in charge. After all, Venmo’s total payment volume grew at a staggering 73% year-over-year pace in the first quarter, and even PayPal’s core merchant services payment volume continues to grow rapidly, with a 29% rise.
PayPal continues to add new users to its platform, despite its already massive size. During the first quarter alone, the company added 9.3 million new active users and processed $161 billion in payments — that’s an annualized pace of more than $640 billion. New partnerships with Instagram, MercadoLibre, and others have the potential to fuel even more growth.
Still, Venmo remains the company’s most promising long-term profit engine. The wildly popular payment platform has more than 40 million active accounts and is processing payment volume at an annualized rate of more than $84 billion — and growing fast. And, Venmo has been integrated into several popular platforms, such as Uber, Grubhub, Fandango, Hulu, and more. In short, as Venmo becomes more and more useful on a daily basis for consumers, adoption will continue to increase, and payment volumes will continue to rise — after all, while 40 million users is certainly impressive, Venmo’s current user base represents only about 15% of the adult population of the United States.
And Venmo is still in the early stages of monetization. Things like the Venmo debit card, Instant Transfer, and Pay with Venmo helped increased the platform’s annualized revenue run rate by 50% to $300 million over the first three months of 2019 alone. Even so, this is a drop in the bucket when you consider that PayPal expects about $18 billion in revenue this year. However, as Ready said during the company’s first-quarter earnings call, Venmo users are “deepening their engagement with us and are looking for more and more products from us.” So, the potential to multiply the revenue run rate several times over is certainly there.
In short, PayPal is growing tremendously, and if the company is able to successfully monetize its Venmo platform, there could be tremendous upside ahead.
Don’t miss this e-commerce play
Chris Neiger (Shopify): If you haven’t heard of Shopify, now is an excellent time for a proper introduction to this growing e-commerce opportunity. The company’s cloud-based platform allows businesses of all sizes to easily set up their own online stores and begin selling their products and services.
Why should investors care about Shopify’s e-commerce platform? Because the company is helping businesses transition to the fast-growing e-commerce market that’s expected to be worth $24 trillion by 2025. E-commerce sales will account for just 11% of all retail sales in the U.S. year, which means there’s still plenty of room for Shopify to help bring more merchants online.
Fortunately for Shopify (and its investors), the company has already been very successful at tapping into this e-commerce opportunity. Shopify has grown the number of merchants who use its platform from 500,000 to more than 800,000 in less than two years. And with that rapid growth has come impressive sales. In the most recent quarter, Shopify’s revenue grew 50% year over year to $320.5 million, and its adjusted net income topped $10 million, up from $4.2 million in the year-ago quarter.
Shopify’s sales come from the company’s two revenue segments: subscription solutions and merchant solutions, both of which are performing well. The subscription solutions segment includes sales generated from subscriptions to the company’s platform, along with add-on items like website themes and domain sales. In the first quarter of this year, subscription solutions sales popped 40% year over year and accounted for 44% of the company’s top line.
Shopify’s merchant solutions business, which is primarily driven by charging payment processing fees to merchants, is also on the rise and jumped 58% from the year-ago quarter to $180 million.
Additionally, Shopify is experiencing strong growth from the company’s Shopify Plus service, which is a platform for its enterprise customers. Shopify Plus now accounts for 26% of the company’s monthly recurring revenue, and Shopify just redesigned the service to make it even more useful to its clients than ever before.
If all of that weren’t enough, Shopify recently said that it’s launching a new fulfillment service with a “dedicated network of fulfillment centers that will ensure timely deliveries, and lower shipping costs” for its customers. This is a big move for Shopify, one that the company is investing $1 billion to make, and it will help it better compete with Amazon as it attempts to lure more businesses to its platform.
Investors looking to tap into the growing e-commerce market should give Shopify’s shares strong consideration. The company is quickly growing its sales, it has tons of room to tap further into the U.S. e-commerce market, and its recent move into fulfillment could make it a compelling alternative to Amazon for many businesses…
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