The world’s most downloaded financial app of 2022 might surprise you


OWhen it comes to personal finance apps, there is some debate as to whether the app of PayPal Credits (NASDAQ: PYPL) is better than Cash App’s To block (NYSE:SQ) or vice versa. They certainly both have their supporters.

However, personal preferences for PayPal or Cash App are anecdotal, and investors should avoid trivia and rely instead on broader consumer trends. That’s why it’s useful to monitor all app downloads. And right now, PayPal – not Cash App – tops downloads by a wide margin.

Why PayPal Wins Global Downloads

Third-party analytics firm Apptopia recently released a list of the top financial and banking apps by downloads in the first half of 2022. Topping the list was PayPal, with 49 million downloads. Cash App was in a distant fourth place with only 35 million global downloads.

Some investors might be surprised by this data, given that PayPal appears to be struggling to gain more users. At the end of the first quarter of 2022, it had 429 million active accounts, which is huge. But it only plans to add 10 million net new accounts for 2022 as a whole. That forecast is down from earlier in the year when it expected to add 15-20 million net new accounts in 2022.

The drop in its active account guidance is one of the reasons why PayPal stock has fallen more than 70% from its peak. Investors fear that its growth will plateau. However, Apptopia’s data is encouraging. Owning the most downloaded fintech app in the world certainly counts for something.

PayPal investors should be encouraged. However, Block investors should not be discouraged at all because there is a simple reason why PayPal beats Cash App in the global competition: Cash App is not a global app. About 99% of Cash App downloads come from US users. And according to the same Apptopia report, Cash App dominates the US market.

Cash App has had 34 million downloads in the US so far in 2022. That’s twice as much as PayPal in second place.

Simply put, PayPal beats Cash App in global downloads because Cash App has only just begun to expand internationally. Block Management plans to fix this soon, which could significantly reduce the download gap between these two apps.

However, even with Block’s impending international expansion, I still think PayPal is a great stock to buy now. Here’s why.

What the market forgets about PayPal

Admittedly, PayPal’s growth is slowing. For perspective, it had 9.8 million net new accounts in the fourth quarter of 2021 alone, which is roughly what it expects to add for all of 2022. However, the company continues to develop accounts, and these accounts are increasingly active.

In the first quarter, 12-month transactions per active PayPal account hit a record high of 47, up 11% year-over-year and up 3.5% from the fourth quarter . In other words, people are using PayPal’s services more frequently, and that’s a good sign for the health of the business.

PayPal takes a small percentage of transactions. And as accounts and transactions grow, that additional revenue helps increase the company’s free cash flow (FCF). In the first quarter, its FCF margin was 16%. In other words, for every $100 in revenue, PayPal had $16 in FCF.

PayPal expects $5 billion in FCF in 2022 and has already generated more than $1 billion. It is now the duty of PayPal management to allocate this money responsibly.

PayPal management has historically done two things. First, it acquires other businesses, such as when it acquired Honey for $4 billion in January 2020. Second, it buys back stock to increase shareholder value. And that’s where things could get interesting for PayPal over the next year, in my opinion.

As already mentioned, PayPal’s stock is down more than 70% from its peak. From 2019 to 2021, management used over $6 billion to buy back shares. The average price-to-sales (P/S) ratio during this period was 37.

PYPL PS Ratio data by YCharts.

With a P/S ratio of just 3.7, PayPal is now trading at its cheapest valuation ever. In other words, management will be able to buy back more shares than they otherwise could if valuations were still high.

For merchants, PayPal’s 70% drop is a problem. However, it is a blessing in disguise for buy-and-hold investors. As we’ve seen, metrics like downloads and transactions per user suggest the company is still in very good shape. And a healthy business generates tons of cash.

PayPal’s buyout power will go deeper now, with shares trading at a cheaper valuation. I expect PayPal’s management to recognize this and accelerate its takeovers over the coming year. And if so, it will provide a welcome boost to intrinsic shareholder value for those willing to hold on through this downturn.

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Jon Quast holds positions at Block, Inc. and PayPal Holdings. The Motley Fool holds positions and recommends Block, Inc. and PayPal Holdings. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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