The growing demand for digital assets and cryptocurrency drives up competition in the fintech space, which uses technology to provide innovative financial services and solutions.
PayPal Holdings (PYPL) remains a prominent player in the fintech space, despite the presence of several interesting players like Block (SQ), Visa (V), Mastercard (MA), Intuit (INTU), and many more.
PayPal has evolved, providing various financial services such as peer-to-peer transfers, e-commerce payments, Buy Now, Pay Later (BNPL) options, and cryptocurrency trading.
Last year, the company went through a transition phase after appointing a new CEO. While the company has had a slow start this year, both the business and the stock are finally showing signs of recovery. Most recently, the company reported a strong second quarter and raised its 2024 guidance.
PYPL stock is up 30.7% year-to-date, while the S&P 500 Index ($SPX) has gained 20%. Nonetheless, PYPL is still cheap, making it a good growth stock to include in your portfolio now.
PayPal is on the Path to Recovery
Since PayPal announced its transition phase under a new CEO about a year ago, the market has been closely monitoring how the company's strategic priorities evolve.
Many analysts believe the new leadership will help streamline operations by cutting costs (which the company did in Q4), and refocus PayPal on the path to consistent profitability. And, as analysts predicted, the turnaround phase has finally begun to take effect.
In the second quarter, while PayPal’s active accounts decreased slightly by 0.4% to 429 million, revenue rose by 8% year-over-year to $7.9 billion. Adjusted earnings increased by an impressive 36% to $1.19 per share. Total payment volume rose 11% to $416.8 billion.
At the end of the second quarter, the company's balance sheet showed $18.3 billion in cash, cash equivalents, and investments, with $12.2 billion in debt. The company also generated an adjusted free cash flow of $1.1 billion. Generating positive, consistent free cash flow should aid in lowering PayPal's debt levels.
The new CEO, Alex Chriss, noted that the strength of the business prompted them to raise their 2024 guidance. The company now expects adjusted earnings to grow in the low to mid-teens, up from the previous estimate of mid- to high single digits. Analysts, on the other hand, predict 2024 earnings to dip by 13.4%, followed by revenue growth of 7.2%.
PayPal's Future Could Be Bright
PayPal's growth drivers provide reasons to be optimistic about its future. Its digital wallet services, including Venmo, continue to gain popularity. PayPal has been actively seeking partnerships and acquisitions to expand its offerings. The company recently announced strategic collaborations with Shopify (SHOP) and other e-commerce platforms to expand its online retail presence.
Furthermore, PayPal has expanded its strategic partnership with fintech companies such as Adyen and Fiserv (FI) to use its Fastlane platform to streamline checkout experiences in the U.S.
PayPal’s expansion into the cryptocurrency space is another key growth area. The company already enables customers to buy, hold, and sell cryptocurrencies directly from their PayPal and Venmo accounts. The company recently announced that it will allow U.S. merchants to purchase, hold, and sell cryptocurrency directly from their PayPal business accounts, as well. This move positions PayPal to better capitalize on the growing interest in digital assets.
What Does Wall Street Say About PayPal Stock?
PayPal's transition phase and efforts to improve its product offerings through continued innovation, its dominance in the digital payments space, and its global reach, have all added weight to the bullish case. In July, analysts at Deutsche Bank, Barclays, and BMO Capital all increased their respective target prices on the stock.
Overall, Wall Street rates PayPal stock as a "moderate buy.” Out of 42 analysts in coverage, 16 rate it a “strong buy,” two recommend a “moderate buy,” 23 rate it a “hold,” while one suggests it’s a “strong sell.”
PayPal stock has surpassed its mean target price of $79.18. The stock's high price estimate of $125 implies a 56.4% potential upside over the next 12 months.
Analysts predict PayPal’s earnings will increase by 9.4% in 2025. The stock is valued at 16 times forward 2025 projected earnings, which appears reasonable compared to its five-year historical average P/E ratio of 54.6.
The Bottom Line on PayPal Stock
Looking ahead, PayPal's ability to innovate and adapt to changing market conditions will define its future. The company's expansion in cryptocurrency, partnerships with major e-commerce players, and emphasis on emerging markets all provide opportunities for future growth. However, competition in the fintech space is fierce, and macroeconomic uncertainties, as well as geopolitical tensions, cannot be ignored.
Those with a long-term investment horizon may see potential gains, particularly if PayPal can execute its growth initiatives and streamline its operations under new leadership.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
