PayPal Vs. Block: Which Stock Is A Better Buy? PayPal Is Far Ahead

(Preview) Company Update (PYPL US, Buy) (SQ US, Neutral)

Summary

• PayPal is a good business and, with shares down 64% since July, can triple by 2025. Block is a mediocre business and a speculative stock.

• For merchants, PayPal means access to incremental consumers, while Block is just one of many ways to accept Visa or Mastercard.

• For consumers, PayPal and Block apps have similar features, but PayPal has a much larger user base and a global presence.

• PayPal is a proven business with solid earnings and financial targets, while Block is barely profitable and faces disintermediation risks.

• PayPal stock is at a reasonable 31x GAAP EPS, while Block's P/E multiple exceeds 1,300x. We rate PayPal as a Buy but Block is to be avoided.

Introduction

In this article we explain why we believe PayPal Holdings Inc. stock to be a good investment, while Block Inc. (formerly Square) stock is not.

We upgraded our rating on PayPal to Buy in May 2020; PYPL stock is now 20% lower, having fallen 64% from its peak last July. We initiated a Hold rating (meaning to avoid) on B…