Can PayPal Fend off Square’s Upward Rise?

Here’s a puzzle that Wall Street spent a good bit of the pre-Thanksgiving onslaught wondering about: While Square started out its life on the stock market at a mere $9.00 a share—which was well below its expected range of $11 to $13—its first day of trading met with almost universal acclaim, jumping up fully 45 percent.

A deliberately lower-priced IPO might have been a sign to buy, but investors bought in only at the lower prices. Does that mean Square may have an edge in the market? Could it beat PayPal?

Zacks recently took a look at this notion, and the answer might surprise you.

Essentially, Zacks asked the question, does Square pose a significant threat to PayPal, one of the leading payment processing systems in the field? While investors have a taste for loss in the technology field—Twitter didn’t get a market cap in the billions by making profit, at least, not yet—this is generally taken on with the expectation of future growth.

Investors are commonly hoping to buy in on the ground floor. Though that doesn’t happen with many stocks—Box comes readily to mind—it does happen, and those who do manage to pull it off get some pretty big rewards.

There’s also no doubt that Square has come a long way since its start seven years ago. It’s making a lot of ground with small businesses and some big ones, like Starbucks, who uses it extensively, and may well have started developing its own platform in light of the wide use of Square.

There’s also no doubt that Square has some problems. It’s been operating for seven years without a profit, and its CEO Jack Dorsey also handles CEO duties at Twitter, and that divided focus may not be helpful. While the mobile payments market is primed for big growth, that rising tide may not lift Square’s ship, especially if it doesn’t have the necessary focus at the top.

Given that PayPal, meanwhile, is considered a hold at Zacks, and is about to finish acquisition of Xoom Corp, it may have a lot more firepower in its stable than Square could hope for. Throw in a long-term name recognition factor and things look even better for PayPal.

Throw in new purchases like Venmo and Braintree and PayPal should have quite a bit going for it in the long term.What really gets me agreeing with Zacks here is that PayPal also offers card readers with PayPal Here. It has a mobile card and an Europay, MasterCard, Visa (EMV) version, giving it plenty of versatility in the field.

That’s good news, and makes it clear that PayPal post eBay isn’t a doomed prospect after all. PayPal will have plenty of competitors to face down; there’s a payment platform for just about every appliance maker out there, and plenty for individual firms as well. PayPal has plenty of backup, though, and that may be enough to keep it ahead of Square for good.