PayPal vs. Bill.com: Which Fintech Stock Is a Better Buy?

After a stellar run in 2020, several high-growth fintech stocks, such as PayPal (PYPL) and Bill.com (BILL), are trading significantly below all-time highs. The tech-heavy NASDAQ has slumped 15% since the start of 2022. Comparatively, PayPal and Bill.com shares are down 67% and 37% from all-time highs.

PayPal is a giant in the fintech space valued at a market cap of $120 billion while Bill.com is a much smaller company valued at $23 billion.

While both these stocks offer significant upside potential from current prices, let’s see which is a better buy in the fintech space right now.

The bull case for PayPal

Shares of PayPal plunged by more than 17% on February 2 after the company announced Q4 results. While the COVID-19 pandemic acted as a tailwind for PayPal it has delivered stellar numbers over the years. Its revenue rose from $10.8 billion in 2016 to $25.37 billion in 2020. Comparatively, its net income surged from $2 billion to $4.1 billion in this period.

In 2021, its sales rose by 18% while free cash flow was up 9% at $5.4 billion. PayPal’s TPV or total payments volume which is the total volume of payments processed on its platform grew by 31% to $1.25 trillion. It ended 2021 with 426 million active accounts, which meant the company added 48.9 million new active accounts last year.

PayPal remains optimistic about top-line growth in 2022 and forecast TPV growth between 19% and 22% this year. It also expects to add between 15 million and 20 million accounts in 2022.

PayPal continues to gain traction in the e-commerce space as 75% of the largest 1,500 enterprises offer their payment solutions at checkout. Over the years, PayPal has widened its portfolio of products to accommodate cryptocurrency brokerage services, buy now pay later services as well as QR code payments.

The bull case for Bill.com

A cloud-based payment platform, Bill.com aims to streamline the management of accounts payable for enterprises. Its solution aggregates invoices to a central location. The company derives revenue from transactions and subscriptions. In fiscal Q2 of 2022 that ended in December, Bill.com’s transaction business derived 68% of revenue and the rest came from subscriptions.

Its revenue in the December quarter almost tripled year over year to $156 billion as the company managed to add 26,000 customers to its platform, taking its total customer count to 135,000.

Its stellar results meant Bill.com increased guidance for fiscal 2022. The company expects to generate $600 million in revenue during fiscal 2022, which is higher than its initial forecast of $541 million.

The verdict

Analysts tracking PayPal expect the company to grow sales by 15.8% to $29.4 billion in 2022 and by 19.8% to $35.2 billion in 2023. Comparatively, its adjusted earnings might rise from $4.6 in 2020 to $5.83 in 2022. So, PYPL stock is valued at a forward price to sales multiple of 4.08x and a price to earnings multiple of 17.7x which is very reasonable.

Comparatively, Bill.com is forecast to increase sales by 151% to $599 million in fiscal 2022 and by 35.4% to $811 million in fiscal 2023. Unlike PayPal, Bill.com is still reporting an adjusted loss per share which is forecast to widen to $0.41 in fiscal 2023, compared to a loss of $0.12 in fiscal 2021. Further, Bill.com is trading at 38 times 2022 sales which is astronomical.

I believe PayPal is a better buy right now, given its large size, lower valuation, and expanding profit margins.

PYPL shares were trading at $103.71 per share on Wednesday morning, up $0.54 (+0.52%). Year-to-date, PYPL has declined -45.00%, versus a -9.89% rise in the benchmark S&P 500 index during the same period.

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.

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