Recently, PayPal (NASDAQ:PYPL) became the first foreign financial services company to secure a license to provide digital payment services in China. The company achieved the milestone through purchasing Chinese online payments provider GoPay. PayPal stock has risen 14% since it closed the GoPay transaction.
PayPal stock rose due to strong earnings
The company reported strong results for the holiday quarter. PayPal’s revenue rose 17% year-over-year to $4.96 billion and beat the consensus estimate at $4.94 billion. The adjusted EPS was $0.86. Notably, the adjusted EPS rose from $0.69 a year ago and beat the consensus estimate at $0.83. PayPal stock has gained 6.0% since the results were released on January 29.
China struggles with the deadly virus outbreak
PayPal is entering China at a time when it’s battling the outbreak of the deadly coronavirus.
The virus has put tremendous pressure on businesses. Recently, Apple warned that it might miss its revenue forecast for the current quarter due to weak sales in China. The contract manufacturers that make the iPhone, Apple’s most important product, are struggling to run their factories. Due to the virus, the factories’ staff didn’t return after the Lunar New Year holiday. The workforce shortage had a negative impact on iPhone production.
Apple closed its retail stores in China as a measure to control the spread of the virus. Walt Disney (NYSE:DIS), McDonald’s (NYSE:MCD), and Starbucks (NASDAQ:SBUX) also responded to the coronavirus outbreak by closing certain businesses.
Outbreak frustrates PayPal’s biggest rival
The rapidly spreading coronavirus poses a serious risk to the Chinese economy and the global economy as business slows down. However, the aftermath of the virus outbreak could be rewarding for PayPal stock.
Notably, the coronavirus outbreak is putting pressure on PayPal’s top competitor. As a digital payments provider, PayPal sees cash as its greatest competitor. To reduce the risk of new coronavirus infections, China is removing cash circulation from regions and sectors impacted by the virus. The government wants to avoid creating a cash shortage as it removes dirty money that could spread infections.
However, withdrawing dirty money has made Chinese consumers aware that cash transactions could expose them to deadly diseases. More Chinese people might embrace digital payments to reduce their risk of infection when there’s a contagious disease outbreak. A broader uptake of digital payment would be a tailwind for PayPal, particularly as it launches domestic operations in China.