EEON Fight Club is a series that analyzes the stock ratings of two stocks in the same sector competing for market share.
Welcome to 2020. There are many fundamental changes that are occurring in our society this year that will shape the future we live in. One of them is the adoption of e-payments.
Mobile Payments Background: In 2015, only 19% of merchants accepted Apple Pay, which resulted in roughly $4.5 billion in sales volume. Four years later in 2019, it is reported that 51% of merchants accept Apple Pay resulting in an estimated $46 billion worth of sales volume, yet this only accounts for 1.1% of total retail and food sales. We can use Apple Pay as a representation for the e-payment industry because most POS systems and payment solutions support Apple Pay. Over the 4 year span from 2015 to 2019 we saw tremendous growth in the adoption of electronic payments, and with Covid-19 we can expect this adaption will only accelerate over the coming years. The shift to an electronic payment world is also due to a generational shift. As millennials and gen z’ers start to make more money, we see that they are also carrying less and less cash than the older generations and relying more on credit cards and other electronic forms of payment.
*Information above is from 2016, Covid-19 implications are not factored in.
That leaves us with the question, who is in the best position to capture this market? Well, off the top of the average investors head, most will think Paypal (PYPL) Vs. Square (SQ). So, let's analyze and see who will win this match up. For this fight club, we will look at growth and scalability scores because they are the most relevant when looking at a growing sector.
Square vs Paypal Growth Potential:
When comparing Square and Paypal there is a clear winner in the growth category. Square, through point of sale, Cashapp, and Ecommerce systems have been able to grow revenue much quicker than Paypal has been. I believe that the innovation and diversification of revenue streams on Squares part is the main driver of a growth score of 93. An important thing to remember is that Cashapp is doing better than Venmo, even though Venmo was created almost two years earlier.
The main reason for this is because of the growth and innovation that Cashapp created. They aren’t just a P2P payment system anymore. Nowadays, you can also use Cashapp to buy stocks and cryptocurrency. Venmo is still just a P2P payment system.
Well, there isn’t much of a difference between the two when it comes to scalability and this makes sense. Both companies are positioned very well to innovate and profit during the shift to an electronic payment world. Although it seems Square is slightly ahead, Paypal has been around twice as long and has the power to innovate.
Square and Paypal both have excellent teams and the power to innovate at the snap of their fingers. With Covid-19 causing a major shift toward an already shifting electronic payment market, both companies are positioned well to gain market share. Venmo and Cashapp are definitely stars of each company, but through recent innovations Cashapp is winning that race. The fight is one and it’ll be a good one to watch.
This article was written by Tom Lombardozzi. Tom's opinions do not reflect those of EEON nor does he have any positions in any of the securities mentioned.