Interested in PayPal Holdings Inc. Stock? Understand These Metrics

By Markets Fool.com

Paypal has been on the market less than a month as a separate publicly traded entity from eBay, and investors are still digesting the potential of the stock on its own. Paypal has a $45 billion market capitalization -- more than $5 billion ahead of eBay -- and trades at about 40 times earnings; investors clearly have big expectations for the company.

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But does PayPal really boast catalysts significant enough to justify this pricey valuation? To better understand the company and its growth potential, investors following PayPal stock should understand these three key metrics.

PayPal headquarters. Image source: PayPal.

Active customer accounts
Key to PayPal's long-term growth story is its continually growing customer base. A growing customer base fuels its growth in transactions, and helps it achieve greater economies of scale. For this reason, investors interested in PayPal stock should always keep a close eye on the company's active customer accounts, ensuring growth in the metric remains strong.

PayPal defines an active customer account as "a registered account that successfully sent or received at least one payment or payment reversal through our Payments Platform." Notably, however, PayPal doesn't count any transactions processed through its "gateway products," which include Payflow Payments and "certain Braintree products."

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PayPal's active customer accounts are growing rapidly. In the company's most recent quarter, active accounts reached 169 million, up 11% from the year-ago quarter.

Transactions per account
But investors, of course, want to know more than how many active accounts PayPal has. Investors also want to know just how active its accounts are. Fortunately, PayPal provides data on this with its transactions per active account metric.

In PayPal's most recent quarter, transactions per account increased from 21 in the year-ago quarter to 24 in Q2, or up 14%. This growth rate is actually an acceleration from 9% year-over-year growth in transactions per account in Q1.

Mobile payment transactions
One of the critical catalysts to PayPal's growth in recent years has been the platform's ability to succeed in mobile. Paypal was an early innovator and leader in the mobile payments space, and a growing population in its markets, who were making transactions on mobile devices, has benefited the company. It looks like this trend of increasing numbers of mobile shoppers will continue to be a catalyst.

Consider PayPal's growth in mobile payment transactions during the company's most recent quarter. Year over year, PayPal mobile payment transactions were up 42% from the year-ago quarter, in line with PayPal's year-over-year growth in mobile payment transactions in the prior quarter.

Because mobile payment transactions represent an increasingly larger portion of PayPal's total transactions, and already account for a meaningful 30% of its transactions today, investors will want to watch this metric closely. Investors should look for PayPal's growth in mobile payment transactions to continue to outpace its growth in total transactions.

As investors eye PayPal's business as a separate entity from eBay, and track key metrics like these, the underlying premise to watch will ultimately be whether or not PayPal can maintain its clear position at the top in the nascent and fast-growing digital wallet space. Investors should look for PayPal to innovate in ways that help the company achieve further growth in each of these three metrics -- active customer accounts, payments per account, and mobile payment transactions -- over the long haul.

The article Interested in PayPal Holdings Inc. Stock? Understand These Metrics originally appeared on Fool.com.

Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends eBay and PayPal Holdings. The Motley Fool owns shares of eBay and PayPal Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.