The shift to digital payments has fueled market-beating gains for stocks such as PayPal (Nasdaq: PYPL), and there’s still room for more growth. PayPal has a sizable and growing customer base of 277 million. The total value of all payments made across its various services totaled $578 billion last year, and the total payment volume continues to grow at about 25% per year, excluding currency changes.
The company’s most promising long-term profit engine is Venmo, a wildly popular payment platform that has more than 40 million active accounts and is processing payment volume at an annualized rate of more than $84 billion – while growing fast. (Its total payment volume grew at a staggering 73% year over year pace in the first quarter.) Venmo has been integrated into several popular platforms, such as Uber, Grubhub, Fandango and Hulu.
PayPal continues to add new users to its platform, despite its already massive size. During the first quarter alone, the company netted 9.3 million new active users and processed $161 billion in payments.
New partnerships – with Instagram, Latin America’s online marketplace MercadoLibre, and others – have the potential to fuel even more growth.
PayPal’s stock may not look like a screaming bargain with its forward-looking price-to-earnings ratio, or P/E, recently near 33, but it holds great promise for patient investors. (The Motley Fool owns shares of and has recommended PayPal.)
Ask the Fool
Q: Is it reasonable to buy a house if I plan to move within a few years? – E.W., Flagstaff, Arizona
A: It’s a risky move for several reasons. For starters, home values don’t always go up over short periods. Your house might fall in value, and when you want to sell, you could end up owing more on your mortgage than the home is worth. Then there are the closing costs when you buy, and the agent commissions you’ll likely pay when you sell. Those can total many thousands of dollars.
Meanwhile, mortgages typically require you to pay mostly interest in your first years of repayments, so you won’t have built up a lot of equity. You’ll also be paying for insurance, property taxes, maintenance and repairs while you own the home.
Renting is often the smart thing to do. Sure, you don’t get a mortgage interest tax deduction and you don’t build equity. But if your rent is much less than your mortgage payment would be, you can invest the difference and build a little nest egg.
Do your own math via a rent-or-buy calculator at Fool.com/calculators.
Q: How can a company’s earnings grow more rapidly than its revenue? Shouldn’t they grow at a similar rate? – K.H., online
A: Revenue (also known as “sales”) is at the top of a company’s income statement, while earnings (or “net income”) is at the bottom; a lot happens in between.
If a company’s revenue holds steady but its costs (such as raw materials, salaries, advertising or research) rise, its earnings will shrink. In contrast, if a company’s earnings are growing faster than its revenue, that suggests it’s becoming more efficient and its profit margin is increasing.
My dumbest investment
My dumbest investment was taking a leap of faith with a financial adviser group that I saw advertised all over the place. I was charged an annual fee for their services, but I lost too much money with them. After two years, it became clear to me that they didn’t know what they were doing, as I continued to lose money regardless of how the market was performing.
When I challenged the group’s choices, I was told to stay the course – their mantra. I fired them, and I have finally made enough to offset their fees and almost 50% of the money they squandered.
My advice: Listen to the thoughts of advisers you trust, but make your own decisions. – T.K., online
The Fool responds: Not all financial advisers are created equal; it can be hard to find the best ones. You can lose money even with the good ones.
Imagine, for example, that the overall stock market gains 10% in a given year, and that your advisers earn 11% for you. If they charge you a 2% fee, your gain has fallen to 9%, below the market average. Remember the vast majority of managed mutual funds don’t do as well as the overall market – partly because of fees.
For many people investing for the long term, it can be best to just stick with low-fee, broad-market index funds instead of professional money managers.
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