Will Amazon Payments Boost PayPal?

Key Takeaways

• As of Black Friday, you can use Venmo when making purchases on Amazon in the U.S.
• PayPal shares went up 7% after the news of this new deal, as the company is set to announce third-quarter earnings shortly.
• Venmo has about 90 million users right now, and there’s hope that the app will become more popular now that its usage capability is expanding.

Venmo was always meant for more than sending money to a friend after splitting the dinner bill. Now Amazon customers in the U.S. can use their Venmo account to make purchases on the e-commerce platform. Since PayPal owns Venmo, this is an excellent opportunity for the digital payments processing platform to add some new users and improve its revenue moving forward.

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

What will this Amazon Venmo deal mean for PayPal?

Amazon announces they will accept Venmo payments

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

The Amazon Venmo deal will allow you to make purchases on the e-commerce platform with your Venmo account. The early rollout for the Venmo checkout option began on October 25, and this should give Amazon a month to work out any issues before the full scale rollout on Black Friday, which falls on November 25 this year.

The PayPal press release indicated how easy the process would be for customers. All you have 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 would be protected by Amazon’s A-to-z Guarantee, with eligible purchases also receiving Venmo Purchase Protection.

Since Amazon is reported to account for 30% of all e-commerce transactions in the U.S., the hope is that more folks will switch over to Venmo with this added exposure. We’re not sure yet how users will engage with Venmo and Amazon, but it’s possible that folks could start splitting purchases they make on the platform with friends and family. While this isn’t a feature that Amazon will include, it’s a possibility since Venmo became popular for its peer-to-peer usage.

What does this Venmo deal mean for PayPal stock?

PayPal stock started at $84.55 the week before announcing the Amazon Venmo partnership the next day. The stock surged 7% and closed at $89.24 before dropping back to $86.25 by the end of that week. It’s worth noting that as of closing on November 4, PayPal stock is down to $75.18 (61.43%) year-to-date for 2022. Many analysts have been concerned with how much the share price have fallen.

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

1. Transaction revenues. This includes fees that merchants and consumers pay for transactions on the platform. The fees are usually a percentage, so the large purchases will come with heftier fees.
2. Other value-added services. The company has partnerships, referral fees, subscription fees, gateway fees, and other services they provide to merchants and consumers.

Since the company relies on transaction revenue, this new partnership should help PayPal increase its earnings. PayPal is already a popular digital payment services platform known globally for handling transactions. If consumers spend more money over the holiday season, this will be positive news for PayPal’s revenue. Also, 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 stock?

Even though PayPal stock rose briefly from this positive news, we can’t ignore how much the share price has dropped in 2022 due to everything that has been happening in the economy.

Here are a few things that you need to know about PayPal stock moving forward.

PayPal earnings

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

So why is the stock down? Paypal adjusted its Q4 earnings revenues by $360 million, from $7.74 billion to $7.38 billion. The growth of Venmo should produce more users, and Paypal is expected to add 8 to 10 million net new users for the 2022 fiscal year.

In the last earnings report, PayPal announced that they had added about 400,000 net new active accounts during the second quarter ending on June 30. This brought the account users up to 429 million active accounts, with roughly 90 million being Venmo accounts.

We will have to see if this Amazon partnership means more people will decide to use Venmo now that their account can be used on a large e-commerce platform like Amazon. Venmo may become more attractive to folks as its features extend beyond just sending money to other people.

PayPal’s cost-cutting measures should improve profitability

During the last earnings report, PayPal announced that they would cut costs in response to the first unprofitable quarter since 2014. With layoffs, real estate consolidation, and project delays, PayPal expects to reduce expenses by $900 million and $1.3 billion in 2023.

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

We have to see how the economy will respond to the rate hikes

With inflation still soaring, the most aggressive rate hike campaign in decades continues. The Fed will be making an announcement on November 2 about what will happen with interest rates. As we’ve seen throughout the year, the stock market doesn’t respond well to these rate hikes because when there’s uncertainty about the economy, there are stock market sell-offs that impact almost every company.

Inflation has also influenced how people spend money since there are fears that the economy could tip into a recession. We have to see how the macroeconomic factors will impact PayPal and Amazon. If consumers are so worried about a recession that they slow down spending on the e-commerce platform then this won’t be as significant of a partnership as the sides imagined.

How Should You Be Investing?

While it may be tempting to invest in a company like PayPal or Amazon right now with the holiday season coming up, there’s still plenty of uncertainty in the stock market, with a recession looming over us. We also don’t know how consumer spending will change this holiday season because there’s no telling how folks will respond to soaring inflation when it’s time to spend money on gifts.

If you still want to invest during times of high inflation and overall market uncertainty, you may want to take a look at Q.ai’s Inflation Kit to protect your investments. You can activate Portfolio Protection anytime to protect your gains and reduce your losses, no matter what industries you invest in.

Bottom Line

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

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