Contemplate Investing in PayPal at Its Current Price Below $100
PayPal's Stock: Navigating the Slump and Seeking Growth
PayPal Holdings (PYPL – 2.49%) has been hit hard by investor skepticism in recent years. The once-soaring stock has fallen a whopping 77% from its 2021 peak, leaving some analysts scratching their heads. Yet, PayPal remains a preferred choice for its 434 million active users. In a bid to revive growth and restore confidence, the company has revamped its executive team and board of directors.
When a stock plummets, it's crucial to understand why. In the case of PayPal, it's a combination of factors, including the easing of digital payment trends and fierce competition. Though digital payments surged during the pandemic, the revival of in-person shopping and competitors like Apple Pay, Block's Cash App, and other fintech players have made it difficult for PayPal to sustain its market dominance.
The company's revenue growth has taken a hit, with a significant deceleration in 2022 and 2023 compared to the highs of the pandemic. Higher transaction costs and increased investments in new ventures have squeezed profitability, causing it to level off.
In an effort to restart growth, PayPal appointed Alex Chriss as CEO in September 2023, replacing Dan Schulman. Chriss cited the company's high cost base as a hindrance, commenting, "The company's focus has not been clear."
PayPal saw a revenue surge in 2024, reaching $31.8 billion, up 7% year over year, and generating a net income of $4.2 billion, albeit a 2% year-over-year decline. This decline was partly due to a 7% increase in operating expenses, such as a $438 million restructuring and other expense. As a result, PayPal's operating margin dropped from 16.9% in 2023 to 16.7% in 2024.
User growth, too, seems to be stagnating. Though PayPal ended Q4 2024 with 434 million active users, this represented only a 2.1% increase from Q4 2023.
Still, there are reasons for optimism among PayPal shareholders. The company is debt-free, with a net cash reserve of $943 million, shielding it from high-interest expenses while leaving room for acquisitions or share buybacks. Management has been actively repurchasing shares, buying back 92 million outstanding shares for $6 billion in 2024, reducing the total share count by 7.4%. Over the past three years, the company has shrunk its outstanding shares by nearly 15%.
From a valuation standpoint, the stock still appears undervalued, trading at a forward price-to-earnings ratio of 14 to 15 – the lowest in the past six months.
With shares under new leadership and a clear strategy for growth, the focus is now on executing this transformation. At its recent Investor Day, PayPal introduced PayPal Open, a consolidated merchant platform aimed at businesses of all sizes. Management expects non-GAAP EPS to grow in the "low teens" by 2027, with a long-term goal of 20% annual growth. Alex Chriss dreams big: "Our vision is for PayPal to be the commerce platform powering the global economy."
Whether PayPal can achieve this vision remains to be seen, but with an attractive valuation and steady profitability, investors have a potential gem in their hands – a company worth considering for their portfolio today.
- Despite investor skepticism, PayPal remains attractive to its 434 million users, who continue to prefer the platform for digital transactions.
- To restore growth and confidence, PayPal has invested in refining its executive team and board of directors, with Alex Chriss appointed as CEO in September 2023.
- As part of its revival strategy, PayPal introduced PayPal Open, a consolidated merchant platform aimed at businesses of all sizes, focusing on achieving non-GAAP EPS growth in the "low teens" by 2027.
- For investors, PayPal's undervalued stock, with a forward price-to-earnings ratio of 14 to 15, presents a potential opportunity for long-term growth, making it a viable choice for portfolios.
