Popular asset manager Cathie Wood continues to crush the market. Ark’s Next Generation Internet ETF is up 41% over the past year, topping the 31% return of the S&P 500. And among the 49 positions in the fund, PayPal (NASDAQ:PYPL) and Unity Software (NYSE:U) stand out.
Both stocks have actually outperformed Ark’s ETF over the past year, and both companies have strong prospects for future growth. Here’s why you should consider adding shares of PayPal and Unity to your portfolio.
PayPal is one of the best known brands in the fintech space. Its platform connects 371 million consumers with 32 million merchants around the world, enabling digital payments across websites, mobile apps, and physical retail locations. That scale gives PayPal an advantage — consumer adoption drives merchant acceptance and vice versa, creating a network effect.
To reinforce that advantage, the company is investing aggressively in its platform. For instance, PayPal launched QR Code payments last year, enabling consumers to make in-store purchases with the PayPal or Venmo mobile wallet. The company also introduced a Buy Now, Pay Later (BNPL) feature, allowing consumers to split purchases into four interest-free payments.
In both cases, these new services are driving engagement. According to PayPal’s data, QR Code users spend 19% more that the average user, and BNPL boosts payment volume by 15% for merchants. More importantly, these aren’t PayPal’s only new products and services. That list also includes support for cryptocurrency, the Venmo credit card, and business profiles on Venmo.
Collectively, these growth initiatives have boosted active accounts and transactions per account. Put another way, more people are using PayPal, and people are using PayPal more frequently.
Over the same period, PayPal’s revenue surged from $14.5 billion to $23.8 billion, growing at 18% year. And its operating margin expanded 330 basis points, reaching 18.1% in Q2 2021. This showcases the company’s operating leverage, meaning it’s becoming more efficient as it scales.
Looking ahead, PayPal is well positioned to maintain that momentum. During the Q2 earnings call, CEO Dan Schulman announced the pending launch of a new mobile wallet. According to Schulman, this “super app” will initially feature high-yield savings accounts, bill pay features, and messaging capabilities, as well as all the old functionality. But each wallet will also be unique, relying on artificial intelligence to create personalized deals and offers.
In total, PayPal plans to add…
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