How to Invest in PayPal: Buy Stock in the Digital Payments Giant
PayPal (NASDAQ: PYPL) is a well-known company that helps consumers and companies handle payments on the internet.
As online commerce grows more prevalent with every passing day, PayPal could play an important role in helping people buy things online far into the future.
If you’re considering investing in PayPal, here are the things you need to know and how to buy your first shares of PayPal stock.
How to Buy PayPal Shares
If you’ve decided that investing in PayPal is the right move for you, here’s how to do it.
Open a brokerage account
The first thing that you’ll need to start investing is a brokerage account. Brokerages help facilitate the purchase and sale of stocks, bonds, mutual funds, ETFs, and other securities.
There are many brokerage companies out there, each with its pros and cons.
Keep in mind that many brokerages have their own mutual funds.
For example, Vanguard and Fidelity manage funds and offer brokerage accounts. If you know which mutual funds you want to invest in, opening an account with the relevant brokerage can get you perks like reduced commissions.
Once you’ve chosen a brokerage to work with, you have to open an account.
That typically means filling out an application, providing some identifying information, and linking a bank account that you can use to fund your brokerage account.
Place a buy order
Once you’ve opened a brokerage account, it’s time to start buying stocks. You do this by submitting a buy order through your brokerage (ticker symbol: PYPL).
There are two types of buy orders: market orders and limit orders.
With a market order, you specify the number of shares you’d like to purchase. Your brokerage will buy those shares at the cheapest possible price.
Market orders are simple, but you could wind up paying much more than you expect to pay. If the cheapest available shares are priced higher than you think they are, the purchase will still go through and you’ll pay more than you planned.
With a limit order, you specify how many shares you want to buy and the maximum price you’re willing to pay. Your brokerage will buy those shares for you at the cheapest available price, so long as that price is below the limit you set.
This lets you make sure you don’t spend too much on the shares.
However, if there are no shares available for less than the limit price, your order won’t get fulfilled, leaving you with no shares in your account.
In general, it is safe to use limit orders as they help you ensure that you don’t overspend on a stock.
Company Overview
PayPal is an American company that operates an online payments service, helping people pay other individuals and companies and helping businesses accept payments online. The company was founded in 1998 as Confinity and went public in 2002.
It was acquired by eBay later that year and remained a subsidiary until 2015, when eBay spun it off in 2015. The company ranked 204th in Fortune 500’s list of the 500 largest companies by revenue in 2019.
Today, PayPal is worth roughly $300 billion.
Research and Analysis
Whenever you’re investing, it’s important that you do your due diligence and research any company that you’re thinking about investing in.
Each investor’s research style is different. Some investors rely on a strategy called fundamental analysis.
This technique looks at things like a company’s revenues, debts, profits, cash flow, and other financial indicators.
Fundamental analysts use this information to try to arrive at a fair price for a stock. If the stock is trading for less than its calculated price, it might indicate a good time to buy shares.
Many people also compare companies to their competitors, to see which company is poised to succeed. Online payments is a popular industry, so PayPal has to compete with many companies, including:
- Google Pay
- Amazon Pay
- Stripe
Other investors use technical analysis when researching. This involves examining stock price charts and trying to identify patterns that could predict a stock’s future price changes.
Keep in mind:
Investing involves risk.
Even if fundamental and technical analysis indicates that the company is poised to gain value, there’s no guarantee that you’ll make money if you invest.
The company’s prospects might change as consumers find another product they prefer to use or a competitor unveils a new product. The management team may also simply fail to grow the business.
Risks
Whenever you invest in a single stock, you’re taking a risk. If the company does well, you’ll profit, but if it falters you could lose some or all of your investment.
A company’s success relies on its ability to provide valuable goods and services and its ability to find and retain customers. Without a useful product or service to attract customers, a company will fail.
With a payments company like PayPal, that means making it easy to pay people electronically.
The good news:
PayPal is large enough that the majority of online retailers accept it as a form of payment.
This gives it a natural way to attract and retain customers, as people who want to buy things online have a good reason to open an account.
Competition
One of PayPal’s primary risks is competition.
There are many companies trying to move into the online payment space, including large businesses like:
If these companies can offer a competitive payment service, possibly with lower fees or incentives that will draw customers away from PayPal, it could have a major impact on PayPal’s business.
Other Ways to Invest in Online Payments
Investing in a single stock can be fun and exciting, especially if you’re a fan of the company that you’re investing in.
If the company does well, your investment is likely to gain value.
However, you’re putting yourself at risk by putting all of your eggs in one basket. If the company that you invest in does poorly, you’ll likely lose money.
One popular way to reduce this risk is by diversifying your investments.
If you invest equal amounts in five different companies and one goes bankrupt, you’ll only lose 1/5th of your investment. You’ll still own shares in four other companies and the gains on those investments may be able to make up for the loss.
One easy way to build a diversified portfolio is by investing in mutual funds and ETFs. These funds hold shares in dozens or hundreds of companies. You can buy shares in the fund to instantly diversify your investment across all of the companies the mutual funds own.
Mutual funds often aim to track specific market indexes, like the Dow Jones Industrial Average or the S&P 500. There are also funds that focus on specific industries, such as technology.
Investing in a tech mutual fund, or one that focuses on the banking or fintech sectors, would be a good way to invest in online payments while building a diversified portfolio.
Consult an Advisor
All investing is subject to risk but investing in a single stock is riskier than other types of investing.
It’s exciting to invest in a company that you believe in but putting all your eggs in one basket means that you could lose a lot of money if that company fails.
It’s always a good idea to consult with a financial advisor to make sure that you’re on track to meet your financial goals. They can also help you decide whether investing in a company is a good idea and how much you should invest.
As with all investing, make sure that you only invest money that you can afford to lose.
