A few months after striking a deal with Affirm Holdings, Amazon (AMZN) - Get Free Report inked a partnership with PayPal. Venmo, PayPal’s person-to-person payment platform, will be accepted as payment on Amazon’s US platform next year.
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Investors give it a thumbs up
Amazon investors seem to have welcomed the news. The stock ended the November 9 trading day up around 2.5%, representing around $40 billion in market cap gain. On that same day, the Nasdaq finished lower by around -0.6%.
To be fair, it is hard to tell for sure that AMZN’s outperformance was driven solely by Venmo. Also on Tuesday, Reuters reported on an antitrust settlement in Europe that may have relieved some of the regulatory pressures that seem to weigh on Amazon shares.
Customer base expansion
At first glance, the arrangement between Amazon and PayPal seemed more of a positive for the latter. UBS analyst Olivia Nesnay believes that the e-commerce giant had the ability to cut the middlemen by using Amazon Pay. But with the deal, PayPal benefits:
"We believe this win solidifies PayPal's competitive advantage as the largest two-sided payments network, while also calming fears of disintermediation by Amazon Pay."
However, Amazon likely stands to gain as well. Venmo has 80 million users, a number that continues to grow. Making shopping easier for a wider customer base can only be a positive for Amazon, at least in what pertains to revenues.
We have recently discussed how it is in Amazon’s DNA to invest for long-term growth. In this regard, the Venmo news seems aligned with the e-commerce giant’s strategy.
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The Amazon Maven’s take
Amazon investors seem to be happy with the recent PayPal deal, as we think they should be. Motley Fool contributor Jeremy Bowman concluded that this arrangement shows that Amazon is thinking strategically. Convenience of payment could be a driver of sales improvement, as it reduces friction at the point of sale.
PayPal has announced a deal with Amazon, and Venmo will be accepted as payment on the platform starting in 2022. Do you think that the news is a positive for the e-commerce giant?
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)