PayPal’s (PYPL) Venmo will become an even more formidable player in payments in the coming years, according to Bank of America.
Over the past year, PayPal has evolved beyond its early peer-to-peer payment options, rolling out new features including a Venmo credit card and cryptocurrency trading. The company has also had an eye for the introduction of high-yield savings accounts and budgeting tools. And on Monday, CNBC reported: that PayPal is looking for a stock trading app.
“Venmo has evolved significantly from once a predominantly P2P platform to where it is today as a multi-leverage digital wallet for monetization, as the platform continues to transform into a ‘super app,’” wrote Jason Kupferberg, research analyst at Bank of America, in a note on Monday, adding that the new features will help fuel the growth of the lucrative wallet app.
A PayPal spokesperson confirmed the latest report to Yahoo Finance, noting that CEO Dan Schulman discussed intentions to launch an equity investment platform on the company’s February investor day. As part of PayPal’s plan to become a stock trading app that allows users to buy, sell and hold individual stocks, the company has engaged former Ally Invest president Rich Hagen, CNBC first reported. .
“We expect these features to drive the continued strong growth of Venmo users and accelerate average revenue per user (ARPU) growth in the coming years,” said Kupferberg, who rates the stock as a buy with a price target of $323, further implying a 12% increase from Monday’s closing prices.
For now, Venmo’s revenue streams come from fees from its credit and debit cards, payments to merchants and cryptocurrency transactions on the platform, and instant wire transfers, or when users pay to send Venmo balances to their banks immediately. Additional features through the app would open up even more monetization opportunities, Kupferberg added.
“The punch line is that in our base case, we estimate that the total number of active Venmo users could reach 120 million by 2023 (up from 76 million as of 2Q) and that the ARPU for Venmo could reach $19.92, which is a CAGR of ~30% reflects (compound annual growth) from 2020-2023,” he said. “That would mean Venmo’s total revenue of $2.4 billion in 2023 (6% of total rpm), versus the projected ~$900 million in 2021 (~3.5% of total rpm).”
This would build on the growth that both PayPal and Venmo have seen over the past year and a half, with staying in place during the COVID-19 pandemic helping to fuel the growth of digital payments.
Venmo processed approximately $58 billion in total payment volume in the second quarter of this year this amount grew 58% compared to the same period last year and comprised approximately one-fifth of PayPal’s total payment volume during the quarter. And Venmo’s payment volume growth also accelerated from the second quarter of 2020, when the total payment volume increased by 52%.
PayPal also competes with rival payment company Square (SQ), which offers its own flagship peer-to-peer payments and wallet platform Cash App. Like Venmo, the Cash app has grown significantly over the past year, with active customers with monthly transactions increasing by more than 30% to 40 million in June this year.
“PYPL has said Venmo is expected to generate positive operating income from 2022, but we believe the platform’s volume and revenue momentum is more important to the stock,” Kupferberg said. “In particular, our analysis does not account for Venmo’s expansion into new countries outside the US (PYPL plans to expand Venmo into international markets within the next five years), which offers upside potential for our estimates.”
Shares of PayPal are up 23.2% so far in 2021, outperforming the S&P 500’s 20.6% gain over that period.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck