Over the past two years, the stock market has received a huge influx of new investors. And if, in the period from 2020 to 2021, the majority benefit from jaw-dropping price rises, then since September 2021, investors have suffered the same discouraging losses. Thus, the shares of two fintech giants PayPal Holdings and Block Inc., have lost more than 70% of their market value.
Given the current correction, many investors add shares of these companies to their portfolios to get a big profit in the coming years. Since both companies occupy leading positions in the fintech field, we suggest that you understand their products and decide which one to invest in.
What Is Block?
Block (formerly Square Inc.) is a fintech company in the United States that develops equipment and software for accepting and processing electronic payments. The company has rebranded and changed its name to the Block (the stock ticker has not changed — SQ) to expand economic opportunities. In other words, the company retains its previous and successful financial and technological business but simultaneously plans to move in a new direction focused on cryptocurrencies and blockchain.
The company started with a payment device for credit cards, developed a product line into a wide range of devices, and developed a set of integrated software solutions that help customers work and manage their business more efficiently, as well as expanding the financial capabilities of individuals.
The company’s clients are private and legal (business) persons in the USA, Canada, Japan, Australia, and the UK.
Now the company has divided its business lines and made them independent divisions.
- Square is the central division of the company focused on entrepreneurs. This includes commercial solutions, business and banking services software, and equipment.
- Cash App is the company’s main application that brings the lion’s share of commission revenue — the central element of the Square ecosystem. Moreover, with the help of the Cash App, users can buy, sell, and transfer Bitcoin.
- Tidal is a global platform for musicians and their fans that uses unique content, experiences, and services to bring fans closer to artists and give the latter the tools to succeed as entrepreneurs.
- TBD54566975 (abbreviated, TBD) is an open platform for developers that simplifies working with Bitcoin and allows using blockchain technologies, bypassing other companies/institutions.
- Spiral (formerly Square Crypto) creates and finances free, open-source projects that promote using Bitcoin to expand economic opportunities.
Due to the company’s focus on cryptocurrencies and blockchain (in particular Bitcoin), the SQ price significantly depends on fluctuations in the cryptocurrency exchange rate. And most of the revenue comes from crypto-related services.
SQ: Reasons to Invest
- TBD is working on the creation of a decentralized cryptocurrency exchange based on the Square payment system. In addition to the growth of commissions in the Cash App and the financial division of Square, the exchange will bring additional commission income from internal transactions.
- The Block company took up the development (or rather, revision) of the Lightning Network. In simple words, LN is an add-on to the Bitcoin blockchain that speeds up BTC transactions and makes them cheaper, that is, scales the entire network.
- Square is developing its hardware wallet and Bitcoin storage service. The Cash App already allowed you to buy/store/send BTC and brought $42 million to the company in the 3rd quarter of 2021 purely by commission.
- The company is working on creating its Bitcoin mining device, which is more advanced than existing GPUs and ASICs. According to the main idea, the company wants to make mining simple and publicly available.
What is PayPal?
PayPal Holdings (ticker PYPL) is a fintech company providing digital online payments. Over the past ten years, PayPal has acquired more than twenty payment businesses to strengthen the company’s core business. The most significant purchases: Venmo mobile wallet, Braintree payment processing service, and iZettle store payment processing service. The company's main task is to ensure effective payment communication between sellers and buyers.
PayPal has been at the forefront of the revolution in the field of payments, making them more convenient and affordable for over 20 years. The company unites more than almost 400 million buyers and sellers and more than 200 markets of the global economy.
In 2021, PayPal’s total payment volume exceeded $1 billion, ending the year with $1.25 billion. Revenue and profit growth for the year amounted to 18% and 19%. The company’s balance sheet and cash flow generation also deserve investors’ attention. A significant amount of PayPal funds of $16.3 billion is almost twice the amount of debt of $9 billion. The company’s ability to generate cash flow is even more impressive. PayPal’s cash from operations and free cash flow increased by 31% and 38% in the fourth quarter to $1.8 billion and $1.6 billion, respectively.
As a result, the company’s core business has every opportunity to continue growing and expanding into new segments without attracting additional debt.
PYPL: Reasons to Invest
- Venmo mobile wallet. Venmo is a revolution for the banking industry. Venmo, which PayPal acquired in 2013, has 80 million active users and was able to increase total payments by 44% in 2021. Just like the Cash App, Venmo is adapted for crypto transactions. Users can buy, sell, and transfer cryptocurrency. Venmo has one main advantage over Cash App. In addition to Bitcoin, Bitcoin Cash, Litecoin, and Ethereum are supported.
- The company announced a partnership with Amazon, allowing customers to pay for purchases using Venmo on the e-commerce platform starting the current year.
- The company’s “Buy Now, Pay Later” service offer, available in eight markets, showed a 325% increase to $3.2 billion in total payments volume in the fourth quarter.
- Revenue from transactions brings the company about 90% of all income. Another 10% comes from additional services for consumers and sellers. PayPal has small expenses that allow it to earn a lot. The team uses the free money to buy other companies and shares from the market, which helps generate additional income.
After analyzing the two most popular fintech companies, we can draw a concise conclusion. Investments in PayPal are more reliable and secure. Investments in Block are more profitable but risky.
Instead of crowding with other competitors, Block is developing new business lines, but time will tell how successful this solution will be. PayPal remains a more reliable option. It is also growing steadily but does not seek to go into other industries.