Square, PayPal, & Shopify Show That Online Payments Growth Is Here To Stay
Hi all, Julie here. Last week we talked about the seeming disconnect between what’s going on in the world and asset prices. One thing several of my fintech friends pointed out though, was that when you dive into what is doing well and what isn’t, that it makes sense. IE: tech doing well, payments doing well, etc. I love the payments space, so I decided to dive into that a bit this week following several quarterly earnings announcements.
For background, PayPal is up 84% year-to-date, Square 135% and Shopify 164%. The way I think of it is that those companies basically just took 3-5 years of growth (if not more) and gained it in about a year due to increased online shopping.
Like Stripe’s Justin Overdorff said on Twitter: From long term investment POV, two powerful secular trends that are still in their earliest innings. 1) Online payments / GDP of the internet. 2) Cloud spend. These TAM’s are still growing & not zero sum competitively (yet). Justin was referencing this chart, which puts the whole theme into perspective.
“The public market is in such a weird spot right now. All the economic information and indicators are incredibly bad - they scream bearish sentiment. And yet asset prices are soaring. A lot of people are obviously worried about a crash of some sort in certain sectors and my view is that the reason tech is doing so well (PayPal, Square, any cloud company) compared to the market is because a lot of people are thinking about what secular trends are sort of like betting on gravity,” Justin pointed out to me.
Back to earnings, where you’ll see a continuation of this theme playing out.
Let’s take a look at PayPal first.
The technology giant said Wednesday it expects revenue to climb 25% this quarter while payments volume surges 30% and it sees full-year revenue climbing 22%. It’s total number of net new active accounts? 21.3 million. For perspective, they added 37.3 million in all of 2019. And it now expects to add 70 million active accounts in the latter half of the year. And the all important payment volume: Total payment volume jumped 30% to $222 billion in the second quarter. Not to mention, more and more things are available via PayPal. The company added 1.7 million merchants, or about three times the average for PayPal.
“In the first half of 2020, the penetration of e-commerce as a percentage of retail sales outpaced prior external forecasts by an astonishing 3 to 5 years,” CEO Dan Schulman on the earnings call.
Shopify next.
The Canadian company said new stores created on its platform surged 71% in the second quarter from the prior quarter. This gave it confidence that consumers’ widespread adoption of e-commerce is more permanent than some of us might have originally thought.
Executives on the earnings call said retail now looks like it probably would have in 2030 in 2020. Stores selling on Shopify sold 1.5 times what they did in the fourth quarter of last year, which is usually the strongest quarter of the year with holiday shopping etc. Revenue almost doubled in its second quarter to $714.3 million, up 97% over the same period last year. The company said this was largely driven by the acceleration in success-based Merchant Solutions revenue, and to a lesser extent by Subscription Solutions revenue.
GMV per merchant increased in the second quarter as sellers of all sizes/geographies benefited from the tailwinds of the shift to online commerce (even when excluding new merchants on the platform). Perhaps one of my favorite stats from the quarter: $13.4 billion of GMV was processed on Shopify Payments in the quarter, an increase of 132% versus the same quarter last year.
“The shift to online commerce is redefining the role of the physical store, and many retailers are reimagining their stores to serve as order fulfillment centers to meet digital demand, so we enhanced our curbside pickup and our local delivery capabilities to give merchants more control of their retail operations by driving last-mile execution,” Harley Finkelstein, Chief Operating Officer, on the call.
“Wrapping up, we believe the COVID pandemic has permanently accelerated the growth of online commerce, changing the retail landscape forever,” Amy Shapero, Chief Financial Officer.
And last but certainly not least: Square. This was a bit different since the company has such a large in-store presence and it had to pause much of Square Capital’s lending. Even so, there are a lot of highlights and reasons to justify the surge in its stock price (aka: people buying things on the internet). In the quarter, GPV from online channels was up more than 50% year-over-year and made up more than 25% of its Seller GPV, up from 14% last year this time. One in three of the new online sellers on boarded during the quarter were entirely new to Square and weren’t using another product. Also super interesting in regards to the cashless trend: In March, 1 in 12 of Square sellers were cashless, and by the end of June, that shifted to 1 in 4.
Cash App is also starting to play a big role. It had gross profit of $281 million, up 167% year-over-year. There were more than 30 million monthly transacting active customers on the app in June. They’re also actually using the product more too, with 7 million people paying with their Cash Card in June, double compared to last year. In the second quarter, these customers were transacting more than 15 times per month on average or every other day, up nearly 50% from a year ago. Not surprisingly, things like the ability to trade stocks on the app have helped with that surge in growth.
Remember, the internet isn’t new. Buying stuff online isn’t new. Yet, I think COVID and these numbers indicate just how much growth is left in these industries. If you look at historical trends, there’s often some big event that provides an acceleration and then it’s off to the races with no looking back. I’d think that COVID is that trend for e-commerce, digital wallets, and a lot of other parts of the payments realm. I find it similar to other trends such as Zoom doing well with people working from home, cloud companies seeing increased demand, and Peloton also seeing a dramatic rise due to people working out from home.
I’ll end on one last thought. If this had only lasted a couple of weeks or a month, I’d argue these trends would have been fairly temporary. But given that it’s been nearly 6 months with no end in sight, these are mostly if not entirely permanent.