PayPal is looking at huge opportunities in payment processing and advertising.
The fintech industry is projected to grow rapidly in the coming years, partly due to the relentless shift to online commerce and expanding demand for digital payment methods. It’s a great idea to invest in companies that can ride that wave, including Block (NYSE: XYZ) and PayPal (NASDAQ: PYPL). These two fintech leaders are among the most popular in the field, and although they have faced some challenges this year, causing them to lag behind broader equity markets, both stocks could be excellent long-term options.
Block has not performed well this year due to weaker-than-expected financial results. In the second quarter, the company’s revenue dropped almost 2% year over year to $6.05 billion. However, Block’s gross profit still jumped 14% to $2.54 billion, while its adjusted earnings per share rose 32% to $0.62.
Gross profit at Block’s two core businesses, Square and Cash App, both increased at a good clip. Square first started as a provider of sleek and convenient point-of-sale systems and now offers a range of services to small and medium-sized businesses, helping them run their operations more efficiently. Cash App, a peer-to-peer payment app, has also extended its reach and now competes with banks in many categories. It offers stock and cryptocurrency trading, a debit card, direct deposits, and more.
Both of these parts of Block’s business should provide important long-term growth avenues. For instance, Cash App is especially popular among younger people, including teens (who require parental approval to have an account). Block sees a major opportunity as its younger customers mature and start earning and spending more money. Block’s focus on younger consumers could pay rich dividends down the road.
The company will also continue to offer more services. The buy-now-pay-later (BNPL) options introduced by Cash App during the past few years have become increasingly popular and were one of the drivers of the app’s strong gross profit growth in the second quarter. Even without increasing the number of users, Cash App is increasing engagement — that is, existing customers opting for more services — which is helping drive strong results for that side of the business.
Some may be concerned about Block’s reliance on Bitcoin trading. The company’s lower revenue from this segment in Q2 was a key reason for its decline in top-line growth. Crypto trading can be volatile, so while it will sometimes help Block’s revenue soar, it will, occasionally, have the opposite effect. Even so, Block’s core business outside of that is performing well and presents attractive long-term prospects. That’s why, after declining 14% this year, the stock is a buy.
