PayPal’s Stock: A Journey from Highs to Uncertainty
PayPal‘s (NASDAQ: PYPL) stock reached its peak at $308.53 on July 23, 2021. Investors were thrilled with the rapid growth of this digital payment giant. The surge in popularity of growth stocks further contributed to its impressive gains.
However, today PayPal’s stock sits around $80. The company has lost almost 75% of its value as the pandemic-driven shift to online shopping has slowed, facing increasing competition and stagnation in active accounts. Is there still a case for long-term investment in PayPal as bullish investors look elsewhere?
Image source: Getty Images.
Investor Concerns: What Drove the Retreat?
PayPal has faced three significant challenges in the last six years. First, it lost the bulk of its payment processing business when eBay (NASDAQ: EBAY) transitioned to using Dutch competitor Adyen (OTC: ADYE.Y) during a five-year period from 2018 to 2023.
Second, the digital payments landscape has become more competitive. Platforms like Apple and Alphabet‘s Google have expanded their mobile payment services, while Block‘s Cash App has gained a strong following in peer-to-peer payments. New buy now, pay later (BNPL) options, notably from Affirm, have attracted younger customers, further dividing the market.
Macroeconomic factors, including inflation and rising interest rates, have also impacted consumer spending and PayPal’s total payment volumes (TPV). As a result, investor confidence led to a shift towards more stable investments.
Dan Schulman, PayPal’s CEO since its spin-off from eBay in 2015, stepped down last year, with Intuit‘s Alex Chriss taking over. This leadership change, alongside existing challenges, has made PayPal a difficult stock to hold as interest rates have climbed.
Could PayPal Be Poised for a Comeback?
PayPal’s growth surged in 2020 as the pandemic increased digital payment activity, briefly compensating for its loss of eBay’s business. However, from 2021 to 2022, growth in revenue, active users, TPV, and adjusted earnings per share (EPS) all declined as pandemic benefits faded and economic conditions worsened.
|
Metric |
2019 |
2020 |
2021 |
2022 |
2023 |
|---|---|---|---|---|---|
|
Revenue Growth |
15% |
21% |
18% |
8% |
8% |
|
Active Accounts Growth |
14% |
24% |
13% |
2% |
(2%) |
|
TPV Growth |
23% |
31% |
33% |
9% |
13% |
|
Adjusted EPS Growth |
28% |
31% |
19% |
(10%) |
24% |
Data source: PayPal.
In 2023, while revenue growth slowed and active accounts continued to decline, PayPal focused on cost-cutting measures to improve operating margins and repurchased $5 billion in shares to enhance adjusted EPS.
In the first half of 2024, PayPal’s revenue grew by 9% year over year. Additionally, active accounts saw sequential growth in both the first and second quarters. Although the company did not give a full-year revenue outlook, it anticipates adjusted EPS growth in the “low to mid-teens” range from $3.83 per share in 2023.
Analysts expect that PayPal’s adjusted EPS will rise by an average of 16% in 2024 and 9% in 2025. With a current share price of $80 and an expected 17 times forward earnings, the stock appears fairly valued. If economic conditions improve and interest rates decline, more investors might consider PayPal a viable option for a comeback.
A Maturing Business: Is Growth Over?
PayPal is reaching a maturity stage in its business operations. The company may struggle to significantly increase its user base beyond the 429 million active accounts reported in its most recent quarter. A reliance on lower-margin platforms like Venmo and Braintree might continue to challenge its long-term profit margins. Furthermore, the company’s revenue from transactions has been declining annually since its split from eBay.
Nonetheless, PayPal is actively introducing new features such as FastLane for easier checkouts, Smart Receipts for tracking purchases, and the Cash Pass rewards program to retain existing users. Additionally, the expansion of its BNPL offerings and an increase in cross-border transactions via the PayPal USD stablecoin may gradually enhance its TPV, potentially compensating for its stagnant account growth.
However, insider sales have outpaced purchases almost two to one over the past year, reflecting skepticism about the successful impact of these initiatives on immediate revenue and earnings growth.
Is This the Right Time for a Contrarian Investment?
While PayPal’s business shows signs of stabilization, its stock may rise slowly as overall market conditions improve. However, it doesn’t seem to be a strong candidate for those looking for a long-term growth investment with substantial returns over the coming decades.
For PayPal to become that kind of investment, the company needs to maintain a steady number of active accounts, stabilize its transaction revenue, and significantly grow its product ecosystem. Without achieving these goals, it might continue to lag behind its faster-growing fintech competitors.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Apple. The Motley Fool has positions in and recommends Adyen, Alphabet, Apple, Block, Intuit, and PayPal. The Motley Fool recommends eBay and suggests the following options: short December 2024 $70 calls on PayPal. Please see The Motley Fool’s disclosure policy for more details.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
