Where will PayPal stocks be in 1 year?

PayPal Holdings (PYPL 0.86%) it could turn out to be one of the best stories of the year. It started the year on a positive note with a new CEO and trajectory, and so far PayPal stock is up 25% year to date.

Let’s see if this continues and where PayPal might be at this point next year.

Platform: Improvement

New CEO Alex Chriss has a vision to transform PayPal from what he calls a “series of products and services” into a unified, complete, omnichannel payment platform.

It already has the dominant fintech platform globally, and its mission is to maintain that position and use it to capture market share and drive growth. Users weren’t captivated by PayPal’s interface when there were newer options around, and PayPal needed a systems and marketing overhaul to present an updated platform and then design it to users.

PayPal has closed a number of deals with partners in recent weeks, including Shopify to present it as a payment option in Shopify stores. It also launched a one-page accelerated payment option called Fastlane, and it works Adyen and Fiserv to spread it quickly. Management says Fastlane checkout has 80% conversions, compared to the industry average of 50%.

Last Wednesday, PayPal made headlines with the news it is partnering with Amazonwhich does not yet present it on its website. The deal is to add PayPal as a payment option through Amazon’s Buy With Prime service, which it offers its third-party sellers to use on their direct selling sites.

Revenue: Growing

Revenues have grown steadily in recent years despite problems in other areas. Up 9% year-over-year (currency neutral) in the second quarter, total payment volume increased 11%.

Transactions were up 8% year-over-year, and active account transactions, where PayPal has focused its attention, were up 11%. It works on engaging its active users and it delivers results.

The Amazon deal is a huge win for PayPal, adding a significant partner to drive more revenue, and investors should expect to see updates on how it’s doing. Expect the new partnerships, as well as others that may be forthcoming, to boost PayPal’s business and contribute significantly to sales.

PayPal should also benefit from lower interest rates. If money starts flooding the economy, that will work in PayPal’s favor. E-commerce is still a growing industry and PayPal is carving out its niche. A year from now, PayPal’s sales should continue to grow at healthy rates and could be accelerating.

Profits: Growing

Part of PayPal’s problem is that much of its growth has come from its Braintree business, or what it calls its “unbranded business.” That’s because Braintree is a white label payment system for eCommerce retailers. Since it’s like a wholesale business, it comes with lower gross margins, and since that’s where the growth was, it pulls the total lower as well.

So two things have happened here: Growth in PayPal’s branded business looks anemic, while its higher-growth segment has seen sluggish profits. That’s not a great combination for a company trying to reinvent itself.

But he showed improvement in the second quarter. Chriss is committed to pricing Braintree’s services at their true value, i.e. price gouging. Management said deal margin dollars, a figure it doesn’t typically report, rose 8% year-over-year, and Chriss noted that Braintree is “significantly contributing to deal margin growth for the first time in over two years”.

Expect further updates on this stock and gross profits to trickle down to higher earnings.

Stock price: gain

PayPal’s stock has been a steady gainer for the year and is up after impressive Q2 earnings. But it got a huge boost from the news that Amazon would start introducing Buy With Prime.

You may have missed some of the price increase, but you should focus on the long term anyway. PayPal stock may not be quite the bargain it was last year, but it also comes with less risk. The story looks much stronger now and is currently trading at a still-cheap 16x 1-year earnings.

PayPal is in a great position right now and should report strong results from its new initiatives a year from now.