PayPal (PYPL) released earnings after the bell yesterday and it was a tale of two timeframes. They missed on both revenue and EPS for Q1, but the stock was still showing double digit gains in this morning’s pre-market based on what was reported about conditions since the end of the last quarter. PayPal had its busiest day ever on May 1, beating even Black Fridays and Cyber Mondays in the past, and set a record for new active accounts in April. In other words, they are one of the companies for whom the pandemic is, in business terms, a plus.
That should come as no real surprise. Sheltering in place has forced even those who previously refused to fully embrace online shopping into the fold. We are all e-shoppers now by necessity and PayPal is one of the beneficiaries. The assumption behind the stock’s surge is that many won’t go back, and that some of the changes forced upon us will prove to be permanent.
In fact, in one respect, that could be true even if we do ever see busy malls again. People are moving inexorably away from cash in America, although that is really just the U.S. catching up with some other parts of the world.
From a global perspective, cash is dying.
It is a slow, lingering death, but the end is starting to look inevitable. PayPal’s success is just another symptom.
As regular readers will be aware, I am an immigrant to the U.S.; I was born and grew up in England. In more normal times I return to see friends and family and am visited here by them fairly regularly. Because of that, I see differences in culture and behavior that some others may not, and that often surprise me. Around a decade ago, for instance, a family member visiting from the U.K. was puzzled when, at the end of a meal out that he had offered to pay for, he was asked to hand over his credit card.
“No thank you” he said, “I prefer contactless”. Both the waiter and I looked at him in a puzzled way. What on earth was “contactless”?
Even back then, that was the normal way of making card payments in the U.K it turned out. The idea of giving a waiter your credit card and watching him disappear into the back to do god knows what with it rather than just waving your card in front of a hand held reader struck my brother-in-law as archaic and, quite frankly, irresponsible. Now, with germ transfer on everybody’s mind, the U.S. seems to be finally coming around to that view.
Another lesson from the U.K came more recently. A couple of years ago, I went to a soccer match at the new Wembley Stadium with a friend. We met, as English soccer fans tend to do, in the pub beforehand. I got there first and ordered a drink, but my proffered twenty-pound note was refused. “Sorry, no cash” said the bartender, and pointed to a card reader on the bar.
It occurred to me then that “Sorry, no cash” could easily become a common phrase here in the U.S. one day. It looks as if the pandemic is hastening that day, so how can investors prepare?
PayPal is an obvious choice, as are Visa (V) and MasterCard (MA). In the short term, the card companies will struggle as physical retail convulses. In the medium term there will be issues too as the companies transition to contactless payments. However, eventually both V and MA will be big winners in the game of progress.
Then there are some other, smaller riskier plays. Square (SQ), for example, is feeling the hit right now, but their service was designed for mobile and remote use. That makes them perfectly placed to take advantage when nobody pays cash for goods and services delivered to their homes, whether that is by their choice or the seller’s.
A cashless society would also potentially be a big boon to something like bitcoin. Once digital payments become the norm, maybe some of the irrational fear and distrust of a system designed for just that will dissipate. There are risks to that, of course, but it isn’t hard to see how, if cash effectively goes away, there will be a demand for another payment method that doesn’t leave a readable, taxable record.
If that is a little too off the wall for you, how about another, much more traditional potential beneficiary? Apple (AAPL) initially released Apple Pay in 2014. It has been fairly successful, but there is still plenty of room for growth and hundreds of millions being sucked deeper into the Apple ecosystem equates to a lot of future profit for the Cupertino giant.
So, whether you want to play it safe with AAPL, V, or MA, or if you are more comfortable with the greater risk and greater potential of bitcoin or SQ, positioning your portfolio for the day when “Sorry, no cash” becomes common in America may well be a smart move.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.