Will Amazon Payments boost PayPal?

Key points to remember

  • Starting Black Friday, you can use Venmo while shopping on Amazon in the United States.
  • Shares of PayPal rose 7% after the announcement of the new deal, with the company due to announce its third-quarter results soon.
  • Venmo currently has around 90 million users, and it is hoped that the app will become more popular now that its usability expands.

Venmo was always meant for more than sending money to a friend after splitting the dinner bill. Now, Amazon customers in the United States can use their Venmo account to make purchases on the e-commerce platform. Since PayPal owns Venmo, this is a great opportunity for the digital payment processing platform to add new users and improve revenue going forward.

Even though PayPal’s stock has fallen over 50% this year, there is hope that they can increase revenue and have a profitable quarter with this partnership.

What will this Amazon Venmo deal mean for PayPal?

Amazon announces it will accept Venmo payments

Many of us started using Venmo for its peer-to-peer feature because it was an easy way to send money to friends. Venmo recently added more features and many online retailers, like Shopify and Lululemon, both of which accept Venmo payments now.

The Amazon Venmo offer will allow you to make purchases on the e-commerce platform with your Venmo account. Early rollout of the Venmo payment option began on October 25, which should give Amazon a month to fix any issues before the large-scale Black Friday rollout, which falls on November 25 this year.

PayPal’s press release indicated how easy the process would be for customers. All you need to do is add your Venmo account when selecting a payment method in the checkout process.

In even more positive news, the companies confirmed that customers will be protected by Amazon’s A-to-Z Guarantee, with eligible purchases also benefiting from Venmo Purchase Protection.

Given that Amazon is said to account for 30% of all e-commerce transactions in the United States, the hope is that more people will switch to Venmo with this additional exposure. We don’t yet know how users will interact with Venmo and Amazon, but it’s possible people will start sharing the purchases they make on the platform with friends and family. Although this is not a feature that Amazon will include, it is a possibility since Venmo became popular for peer-to-peer use.

What does this Venmo deal mean for PayPal stocks?

PayPal stock started at $84.55 the week before announcing the partnership with Amazon Venmo the next day. The stock jumped 7% and closed at $89.24 before falling back to $86.25 at the end of this week. It should be noted that as of the November 4 close, PayPal stock has fallen to $75.18 (61.43%) since the start of 2022. Many analysts have expressed concern about the price drop of action.

When PayPal releases its earnings reports, the company has two types of earnings.

  1. Transaction income. This includes fees that merchants and consumers pay for transactions on the platform. Fees are usually a percentage, so larger purchases will come with higher fees.
  2. Other value-added services. The company has partnerships, referral fees, subscription fees, gateway fees and other services it provides to merchants and consumers.

Since the company relies on revenue from transactions, this new partnership should help PayPal increase its revenue. PayPal is already a popular digital payment service platform known worldwide for processing transactions. If consumers spend more money during the holiday season, that will be good news for PayPal’s revenue. Additionally, some consumers may be more likely to spend money on Amazon now that they can use their Venmo accounts instead of a credit card.

What’s next for PayPal stocks?

Even though PayPal stock briefly rose after this positive news, we can’t ignore how much the stock price has fallen in 2022 due to everything that’s happened in the economy.

Here are some things you need to know about PayPal actions going forward.

PayPal Earnings

PayPal announced its third quarter results: earnings of $1.08 per share, beating the expected 96 cents per share. Revenue also exceeded expectations at $6.85 billion, much better than initial estimates and even adjusted revenue is expected to be $6.82 billion, which would have been a comfortable 10.3% increase from one year to the next.

So why is the stock falling? Paypal adjusted its fourth quarter revenue by $360 million, from $7.74 billion to $7.38 billion. Venmo’s growth is expected to produce more users, and Paypal is expected to add 8-10 million net new users in fiscal 2022.

In the latest earnings report, PayPal said it added approximately 400,000 new net active accounts in the second quarter ending June 30. This brought the account’s users to 429 million active accounts, of which approximately 90 million are Venmo accounts.

We’ll have to see if this partnership with Amazon means more people decide to use Venmo now that their account can be used on a major e-commerce platform like Amazon. Venmo may become more appealing to people because its features go beyond just sending money to other people.

PayPal’s cost-cutting measures should improve profitability

In the last earnings report, PayPal said it would cut costs in response to the unprofitable first quarter since 2014. With layoffs, property consolidation and project delays, PayPal plans to cut spending by $900 million. dollars and $1.3 billion in 2023.

It’s also important to note that PayPal confirmed that hedge fund Elliott Management had invested $2 billion in the company and that the parties had entered into an information-sharing agreement to increase shareholder value. Many analysts believe that with the activist hedge fund investor’s investment in PayPal, management will be forced to make improving profit margins a priority as the company has struggled in the post-pandemic world.

We need to see how the economy reacts to rate hikes

As inflation continues to soar, the most aggressive rate hike campaign in decades continues. The Fed will make an announcement on November 2 on what will happen with interest rates. As we have seen throughout the year, the stock market does not react well to these rate hikes because when there is uncertainty about the economy, there are stock market sell-offs which affect almost all businesses.

Inflation has also influenced how people spend money, as there are fears the economy could tip into a recession. We need to see how macroeconomic factors will impact PayPal and Amazon. If consumers are so worried about a recession that they are slowing down their spending on the e-commerce platform, this partnership will not be as significant as the parties imagined.

How should you invest?

While it may be tempting to invest in a company like PayPal or Amazon right now as we approach the holiday season, there is still a lot of uncertainty in the stock market, with a recession looming over us. threatens. We also don’t know how consumer spending will change this holiday season, because it’s unclear how people will react to soaring inflation when it’s time to spend money on gifts.

If you still want to invest in times of high inflation and overall market uncertainty, you can check out Q.ai’s Inflation Kit to protect your investments. You can activate portfolio protection at any time to protect your gains and reduce your losses, regardless of the sectors in which you invest.

Conclusion

The Amazon Venmo partnership is mutually beneficial for all parties involved because you now have more options for shopping on the e-commerce platform. If PayPal is able to meet cost-cutting measures while increasing revenue, the company should be able to turn a profit. It’s also important for us to remember that the results of this new Amazon Venmo deal won’t be apparent until 2023.

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