PayPal Stock: A Long-Term Opportunity Despite Recent Setbacks

Theodore QuinnSaturday, Dec 28, 2024 7:19 am ET
3min read


PayPal Holdings (NASDAQ:PYPL) has been a rollercoaster ride for shareholders over the past three years. The digital payments giant, once a darling of the tech industry, has seen its stock price plummet from its peak in 2021, leaving investors wondering if they should hold on or cut their losses. However, a closer look at PayPal's fundamentals and strategic direction reveals that the company may still be an attractive long-term investment.



The Fall from Grace

PayPal's stock price decline can be attributed to several factors:

1. Increased Competition: The rise of Apple Pay, Google Pay, and other digital payment platforms has put pressure on PayPal's market share.
2. Slowing Growth: As the e-commerce boom of the pandemic era cooled, PayPal's user growth and transaction volumes slowed down.
3. Margin Pressure: PayPal's focus on less-profitable products, such as white-label payment services, has led to a decline in gross margins, which dropped to 45.8% in the fourth quarter of 2023 from 55.9% in 2020.



A New Hope

Despite these challenges, PayPal is not without hope. The company has taken steps to address its issues and refocus its strategy:

1. New Leadership: PayPal appointed Alex Chriss as its new CEO in late 2023, bringing fresh perspective and a renewed focus on innovation and growth.
2. Innovation and Partnerships: PayPal has introduced new features like Fastlane, which can autofill personal information and credit card data, and has formed strategic partnerships with companies like Shopify to expand its reach.
3. Cost-cutting and Efficiency: PayPal is working to improve its gross margin and reduce its reliance on lower-margin businesses like Braintree.



Valuation and Future Prospects

PayPal's stock price decline has left it trading at a significant discount to its historical valuation. The company now trades at 12.1 times 12-month forward earnings forecasts, down from a peak of 57.3 times in July 2021. This valuation is more in line with regional banks, such as U.S. Bancorp and PNC Financial Services Group, which have market values of $67.6 billion and $60.4 billion, respectively, and P/E ratios of 11 and 12.3, respectively.

While PayPal's growth prospects may not be as robust as they were in the past, the company's discounted valuation and strategic initiatives make it an attractive long-term investment. As PayPal works to reverse the decline in profit margins and boost earnings, investors should keep an eye on its progress. The company is expected to report earnings of $1.22 per share on sales of $7.5 billion in the first quarter of 2024. If PayPal can beat these numbers, it could signal that the company is back on track and that its stock price may finally start to recover.

In conclusion, PayPal's stock price decline over the past three years has been a challenging time for shareholders. However, the company's discounted valuation, strategic initiatives, and long-term growth prospects make it an attractive long-term investment. As PayPal works to address its challenges and refocus its strategy, investors should remain patient and optimistic about the company's future.