There are a number of long-term trends that have been shaping our economy in recent memory. The intersection of finance and technology deserves a lot of attention.
There are countless so-called Fintech stocks Available to choose from. However, investors may be concerned PayPal (NASDAQ: PYPL) and visa (NYSE: V)both of which have good qualities. Which of these payment companies is more worth buying in 2025?
One similarity you'll notice between these companies is that they economic moat get support network effect. PayPal has 432 million active users, including merchants and consumers. As the platform gets bigger, it becomes more valuable to everyone.
Visa, on the other hand, has 4.5 billion active cards worldwide. These cards are accepted at more than 130 million merchants worldwide. Likewise, as the card and merchant base grow, the network becomes increasingly valuable to both parties.
PayPal and Visa have benefited from the rise in cashless transactions, a long-term trend that still has a long way to go. According to the Pew Research Center, 58% of Americans still use cash for some or all transactions during the week. The data is from 2022, so the ratio may have declined. However, it shows a wide range of cashless transactions, especially with PayPal and Visa. This is true even in advanced economies.
Investors will certainly appreciate how financially profitable these businesses are. Over the past five years, PayPal's operating profit margin has averaged 16.4%. Visa smashes that number, with its average operating margin over the past five years reaching a ridiculous 66.1%.
There are also some differences that investors should keep in mind. First, PayPal's valuation is cheaper. Its trading price is P/E ratio The current (P/E ratio) is 20. Not only is this 55% lower than its historical average valuation, it's also well below Visa's 32x price-to-earnings ratio. To be fair, though, Visa's valuation is 8% below its average over the past 10 years.
However, Visa's premium valuation relative to PayPal is reasonable. It's a superior business with more stable financial performance and better profitability.
Additionally, Visa faces little threat of disruption because it is so entrenched in our economy, processing $16 trillion in annualized payment volume last fiscal quarter. Imagine the chaos if the Visa network went down. A large part of global commerce will be suspended.
Although PayPal is the leader in online shopping, it still faces stiff competition. Popular digital wallets such as apple Payment and personal finance apps such as cloggedCash app that engages consumers. It's getting harder for PayPal to stand out in a crowded field.
Merchants can also choose compelling payment services. Therefore, predicting PayPal's position in the industry five or ten years from now will become more difficult. This increases uncertainty.
I still think PayPal is a better stock to buy in 2025, especially given its more attractive valuation. It does face competitive threats on all fronts. So you could say it's a riskier business to own.
This is especially true when compared to Visa, which is a safer, higher quality company, although it trades at a higher valuation, which will certainly hinder the realization of strong portfolio returns. Investors should keep Visa on their watch list until a significant pullback necessitates a buying decision.
In my opinion, PayPal has a better chance of generating market-beating returns over the next five years.
When our team of analysts have a stock tip, they can pay to hear it. after all, stock advisor The average total return was 884%, a market-beating performance compared to the S&P 500's 175%. *
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*Stock Advisor returns as of January 13, 2025
Neil Patel and his clients have no positions in any of the stocks mentioned. The Motley Fool holds positions and recommends Apple, Block, PayPal, and Visa. The Motley Fool recommends the following options: Long January 2027 $42.50 PayPal calls and short March 2025 $85 PayPal calls. The Motley Fool has a disclosure policy.
Which fintech stock to buy in 2025: PayPal or Visa? Originally posted by The Motley Fool