A global boom in e-commerce has been one of the few positive business stories to emerge from the coronavirus pandemic. Listed payment gateways Adyen NV, PayPal Holdings Inc. and Square Inc. are in the perfect position to capitalize on it.

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The share prices of all three have soared during the pandemic, and this strong run is likely to continue even after lockdowns ease, according to industry insiders. The coronavirus has catalyzed a major shift in consumer behavior, with in-store sales falling and online transactions taking center stage. For many consumers, especially those who have tried e-commerce for the first time, the change in their buying habits could be permanent, they said.

Stock market darlings

PayPal and Adyen reported strong first-quarter earnings, while Square struggled. However, all three posted consistent share price growth, with stocks trading comfortably above where they started 2020.

PayPal president and CEO Daniel Schulman said in an earnings call that the company saw a record number of transactions on May 1, and that they added 7.4 million new accounts in April alone. PayPal expects new accounts in the second quarter to exceed 15 million, compared with 10 million in the first quarter.

Adyen, the Dutch-based B2B financial technology company that handles back-end payments for Uber Technologies Inc., Facebook Inc. and smaller merchants, said its processed payment volume jumped 38% year on year in the first quarter to €67 billion. Net revenue grew 34% year on year to €135.5 million during the period. While in-store transactions fell dramatically, the uptick in online activity largely compensated, according to a trading statement.

Square, co-founded by Twitter Inc. CEO Jack Dorsey, had a more challenging start to the year, reporting a net loss of $8.7 million for the first quarter. But investor confidence in the company's stock has not wavered, with shares trading above $90 on June 4, compared with $63.83 on Jan. 2.

With a higher exposure to the restaurant industry than its peers, Square was always likely to be more affected by lockdowns, which partly explains its weaker performance, Jordan McKee, research director at 451 Research, an S&P Global company, said in an interview.

McKee said that he found the company's solid share price performance "slightly surprising," given the first-quarter loss. But Square appears to have pivoted quickly after the hit to its restaurant business, to focus on signing up merchants that were not set up for online retail before the pandemic hit, he said. The company's "secret sauce" — the relative simplicity of its platform and ease of use from a merchant's perspective — could help it to stand out from its peers, he said.

Accelerating change

The deflection of consumer spend from in-store to online has been underway for some time, but several years of behavioral change have been "compressed into a matter of weeks" for the payments industry due to the pandemic, McKee said.

Curbside pickup and order-ahead are driving transactions, alongside online shopping, McKee said. Consumers may maintain some of these habits even after lockdowns end, he said.

"These use cases tend to be fairly sticky," he said, adding that it's particularly true for older consumers who may have tried e-commerce for the first time during the pandemic. "We might not see the same degree of activity from older consumers as we did during lockdown, but I think they will have developed some 'muscle memory' for online payments," he said.

PayPal CFO John Rainey said in May that the over-50s had been the company's biggest-growing customer segment in March and April.

Thomas Couvreur, financial analyst with broker/dealer KBC Securities, also forecast a shift in consumer behavior. "While there will of course be a drop in online sales after corona as people go back to stores, I do believe that there will remain a change in mindset. Merchants are investing or will invest in online sales channels as they are clearly seeing the value of it now. And buyers who used to be skeptical of online sales have experienced the convenience of it," he said in an email.

Bright future

Many investors will have viewed shares in Adyen, PayPal and Square as a defensive play during the pandemic, but all three should maintain their run of strong performance on the stock market in the longer term, according to Claudio Alvarez, London-based partner at GP Bullhound, a fintech investment and advisory firm.

"I don't see these businesses trading that far off where they are at the moment," Alvarez said in an interview.

Sanjay Sakhrani, managing director at KBW and analyst covering Adyen, believes that the company's shares are set for relative outperformance in the longer term.

"Their future is really bright because they have a great product," he said.

Adyen was already chipping away at its competition before the pandemic hit, Sakhrani said.

In one particularly high-profile coup, Adyen ousted PayPal as e-commerce giant eBay Inc.'s primary payment provider in early 2018.

The company is also likely to have a backlog of new clients to service as merchants who did not have an online payment option in place before the pandemic scramble to get one, he said.

But don't assume that payment gateway share prices can only go in one direction, KBC Securities' Couvreur cautioned.

"When corona worries ease and the market recovers, I would expect these defensive names like Adyen to underperform as investors take on risk again in their portfolios," he said.

And there is another "big caveat" for the payment gateways, according to GP Bullhound's Alvarez. A second wave of coronavirus infections or prolonged economic downturns would undoubtedly lead to a drop in consumer spending power, with a knock on effect for transaction volumes for PayPal, Adyen and Square.