What’s Going On Here?

PayPal’s come a long way from humble beginnings: the US payments giant posted bumper earnings late Wednesday, and it had cryptocurrency trading partly to thank.

What Does This Mean?

PayPal’s revenue was 31% higher last quarter than a year previously, while profit shot up 85% to reach its highest level ever. Both figures were above investors’ expectations, driven by an ongoing surge in ecommerce spending: the company handled over $1 trillion worth of transactions over the last 12 months.

But PayPal also pointed to cryptocurrency as a major new source of growth. Since late March, its US users have been able to buy, sell, and pay for stuff with four of the largest digital currencies (although dogecoin remains as-yet unsupported). Half of those open PayPal’s app daily, suggesting crypto could be an exciting avenue to increase engagement. With a full-blown digital wallet on the way later this year, it’s perhaps no surprise the company’s earnings forecast for the rest of 2021 was higher than investors had anticipated.

Why Should I Care?

The bigger picture: Brace, brace, Coinbase.
PayPal may have its crosshairs trained on newly listed cryptocurrency exchange Coinbase in particular. With 26 million retailers signed up, PayPal's well-positioned to cash in on wider acceptance of crypto-based payment options – and convenience could lure across some of Coinbase’s current six million users, draining the latter’s own earnings potential. That may explain why Coinbase’s share price fell 6% on Thursday, while PayPal’s rose 3%.

For markets: Stocks are, like, so 2020.
Retail investors have apparently lost interest in the stock market recently, turning their attention to cryptocurrencies instead. According to US investment bank Jefferies and European stock exchanges, share trading volumes fell 20-30% in April compared to March, while crypto trading activity rose 40%.

Company Spending Might be Getting Out Of Hand

What’s Going On Here?

A host of companies have announced massive spending plans this year, with Goldman Sachs even predicting that US firms will spend 19% more cash in 2021 than last year.

Here’s the thing: most investors are used to thinking about the operational risks of investing in a company, like the effect of fewer sales or higher costs on its share price.

But we’re all less likely to consider the non-operational risk of what it’s spending its money on. Even then, you mightn’t realize that one particular spending strategy is better for a company’s stock than the others.

And given that company spending is on the rise and habits are starting to shift, it pays to know which is which.

So that’s today’s Insight: the three main company spending strategies, and how to tell which one’s the real money-maker.

Gimme Shelter

What’s Going On Here?

The Bank of England (BoE) upped its forecast for the UK’s economic growth on Thursday, but the fallout could cause itchy feet and feverish sweats among investors.

What Does This Mean?

The UK’s central bank is now expecting the country’s economy to grow by over 7% in 2021, up from its 5% forecast back in February (tweet this). That’s mostly down to the surprise success of its vaccine rollout, which has seen over half the population get at least their first shot.

But with every silver lining comes a cloud, and the BoE’s decided to slow down its bond-buying program – one that helped businesses and individuals during the pandemic by lowering the cost of borrowing money. And now the BoE’s bitten the bullet, it might only be a matter of time before other major central banks follow suit.

Why Should I Care?

For markets: You know what that means…
The prospect of higher interest rates could make investors nervous. See, when the BoE reduces its bond purchases, the total demand for them (all else equal) is lower. That drop in demand should send their prices down and their yields – which move inversely – up. And since investors use these yields to help decide interest rates on new bonds, there’s a risk those rates will rise too. That’ll make borrowing more expensive, leading companies to invest less and grow their earnings more slowly – in turn damaging their share prices.

The bigger picture: Investors are easily spooked.
Earlier this week, Janet Yellen – the US Treasury Secretary and former Federal Reserve chair – said the country’s central bank might need to hike interest rates to stop the economy growing too fast, too quickly. That seemed to worry already-skittish investors, who sold off stocks – especially those of most-at-risk tech firms – in their droves. Of course, plenty of them bought back into them, tail between legs, when she pointed out that her statement was neither a prediction nor a recommendation.

You might also like: Why you should hang onto central banks’ every word.

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What’s Going On Here?

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Company Spending Might be Getting Out Of Hand

Gimme Shelter

What’s Going On Here?

What Does This Mean?

Why Should I Care?