“Pay” stocks in play

05/29/19
  • Payment-processing stocks jumped yesterday amid industry merger
  • GPN–TSS deal is third major acquisition in the space this year
  • Other industry players have posted strong rallies this year

On what was a flat day for the US stock market, one area that was all up arrows yesterday was a corner of the tech sector known as payment processing—companies that make the technology we use to pay for things directly via our phones or tablets, foregoing cash or credit cards.

There was a good reason many of these stocks were boasting 1%-plus rallies as the broad market slipped into the red: One of the major players in the space, Global Payments (GPN) announced it had agreed to buy one of the others, Total System Services (TSS), for $21.5 billion. It was the third major deal in the industry this year.1

And with more startups entering the space every day—and e-commerce forecasted to exceed $1 trillion by 20232—mergers and acquisitions could become increasingly common.

But the bump in payment processors (PP) wasn’t a one-day phenomenon. While tech has taken a bit of a thumping the past few weeks as trade worries have ramped up, many of the high-profile names in the PP industry have held their ground—or more, as evidenced by Worldpay’s (WP) recent rally to record highs:

Worldpay (WP), 2/14/19–5/28/19. Up nearly 60% in 2019

Source: Power E*TRADE


WP, which is up around 59% on the year, has gained more than 30% just since late February.

Despite pulling back from its May 16 record high, PayPal (PYPL)—one of the true household names in the PP industry—was still enjoying a roughly 33% gain this year, with yesterday’s 2%-plus intraday rally providing a little more to the bounce off of last Thursday’s swing low:

PayPal (PYPL), 3/7/19–5/28/19. 2%-plus rally yesterday

Source: Power E*TRADE


And while WP and PYPL are still hanging around their respective record highs, another payment processor, Square (SQ), rallied yesterday after a more significant retracement. The stock was one of the high-flyers of the 2017–2018 tech surge, rallying from $13.81 at the beginning of 2017 to $101.15 (that’s 632%) by October 1, 2018.

But after tumbling 50% over the next two months, SQ rallied back above $82 by late February. Most recently, it bounced off its May 13 low of $61.65—a level many technical traders likely recognized as the 61.8% Fibonacci retracement level of the December–February rally:

Square (SQ), 12/20/18–5/28/19. Bounced off retracement level

Source: Power E*TRADE


Big moves like yesterday’s—driven by juicy news stories—can sometimes evaporate (at least temporarily) just as quickly as they emerge, but after the market spotlight has turned elsewhere, experienced traders are likely to note that WP, PYPL, and other notable names in the PP space were already outperforming the broad market, in which case future dips may continue to be potential buying opportunities.

Market Mover Update: After a minor dip last Thursday–Friday, Zillow Group (ZG) turned back to the upside yesterday (see “Home is where the algorithm is”)   

Today’s numbers (all times ET): Germany Unemployment Rate (3:55 a.m.), Richmond Fed Manufacturing Index (10 a.m.), Bank of Canada Announcement (10 a.m.).

Today’s earnings include: Bank of Montreal (BMO), Baozun (BZUN), Dick's Sporting Goods (DKS), Keysight (KEYS), Palo Alto Networks (PANW), PVH (PVH).

 

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1 U.S. News & World Report. Global Payments Buying Total System Services in $21.5B Deal. 5/28/19.

2 BusinessInsider. THE PAYMENTS INDUSTRY ECOSYSTEM: The trend towards digital payments and key players moving markets. 12/21/2018.

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