Many investors have flocked to stock-purchasing app Robinhood this year. Some are making stellar investing decisions, while others are buying companies that they would be better off avoiding.
For those looking at a volatile stock market and trying to decide which companies will make great long-term investments, Robinhood investors have gotten it right about Amazon and PayPal Holdings. Here’s why.
It can be easy to assume that Amazon’s fantastic stock price ride will soon be over and there’s nothing left for investors who buy it now. But that’s not true. The company has proved during this tumultuous year that its services are needed more than ever and that it has the ability to adapt even when a worldwide pandemic and U.S. recession strike.
Amazon has been one of the only bright spots in the American job market this year. It has hired 400,000 employees in 2020 to meet the increased demand from its e-commerce business. In the third quarter, Amazon’s total revenue spiked 37%.
Some investors may be worried that e-commerce demand will drop off when the pandemic is over. However, even with its current popularity, e-commerce still has a lot of room to grow. E-commerce sales accounted for less than 15% of U.S. retail sales last quarter. That means there’s plenty of room for this market to grow and for Amazon to continue tapping into it.
Additionally, Amazon will continue to benefit from its lead in public cloud computing, where it holds 33% market share. Amazon Web Services is used by companies of all sizes to host their websites and provide online tools like artificial intelligence. The public cloud-computing market is still growing and could reach $364 billion in 2022, up from $258 billion this year, according to Gartner.
Between Amazon’s ongoing cloud-computing opportunity and its massive lead in the e-commerce space, it’s no wonder Robinhood investors are banking on it.
PayPal, like Amazon, has made significant gains this year because of the pandemic. The company is one of the leading digital payment providers, and when lockdowns and social distancing kicked in, PayPal users began making lots of purchases using the company’s platform.
In the most recent quarter, revenue spiked 25% from the year-ago quarter and adjusted earnings per share jumped 41%. The company has added new customers at a healthy clip. It picked up 15 million net new active accounts during the third quarter, ending the period with 361 million active accounts.
That spike in accounts helped PayPal increase its gross payment volume — the dollar amount spent on the company’s payment platform — by 38% to $247 billion.
PayPal’s growth will of course slow down a bit when the pandemic is over, but don’t make the mistake of thinking that it will evaporate. As I mentioned earlier, e-commerce sales are still growing and remain a relatively small slice of overall U.S. retail sales. As e-commerce grows, the platform will continue to be a go-to service for processing online payments.
Additionally, the U.S. digital payments market will reach an estimated $1.6 trillion by 2024, up from $910 billion in 2020. All of this means that PayPal’s dominance in digital payments should continue as this market grows.
Don’t drop out of the market too soon
It’s worth mentioning quickly that in order to build wealth, investors need to not only pick the right stocks but also stick with them for the long term. Think years, not quarters. If you buy Amazon and PayPal now and then sell them based on the daily news, you’ll miss out on the years of gains these stocks could enjoy.