PayPal (NASDAQ: PYPL) stock price has bounced back in the past few months, helped by its ongoing turnaround. It jumped to a high of $74.40 this month, its highest point since August 2023. It has jumped by about 45% from its lowest point in December.
PayPal has faced many headwinds
PayPal has been one of the most embattled companies in the financial services industry. Its growth exploded during the Covid-19 pandemic as the number of customers soared to a record high.
PayPal benefited from the work-at-home situation and the soaring digital money transfer. As a result, its stock soared to over $300 in 2021 and then started its downtrend, settling at $50.21 in November last year.
Its market cap surged to over $300 billion and then slipped to below $50 billion in 2023. This valuation has jumped to over $74 billion today.
PayPal’s crash happened as it faced numerous headwinds. First, it faced the challenge of soaring competition from other fintech companies. Its money transfer division faced competition from the likes of Wise, Remitly, and Payoneer.
Its unbranded business also faced robust competition from the likes of Google Pay, Amazon Pay, Apple Pay, Stripe, Adyen, and Alipay, among others. This is a big issue since PayPal makes a substantial amount of money from the unbranded division.
PayPal has also been losing customers over the years. Its total number of active customers jumped to over 435 million during the pandemic, a figure that has dropped to 429 million.
PayPal turnaround continues
Now, PayPal, under new CEO Alex Chriss, has been working to turn its business around in a bid to reinvigorate growth.
As part of the turnaround strategy, the company has announced a big round of layoffs of about 9% of its total workforce.
It has also embarked on some financial engineering by increasing its share repurchases. These buybacks help to boost a company’s stock by making the earnings per share (EPS) higher.
The logic behind share repurchases is simple. Assume that a company has 1,000 outstanding shares and it makes $100,000 in profit. This means that each share will be worth $100. If the company reduces the outstanding shares to 800, it means that its earnings per share will be $125.
PayPal has also launched new products, with the PYUSD being the most notable one. PYUSD is a stablecoin that has attracted over $770 million in assets. Stablecoins make money when the developers invest the cash and earn interest. In some cases, they also make money through transaction costs.
PayPal’s challenge in the stablecoin industry is that the sector is currently controlled by Tether, which has over $118 billion in assets. Its earnings in the last financial year stood at over $6 billion, making it more profitable than Blackrock.
PayPal has also launched Fastlane, a feature that helps to simplify online shopping by letting people checkout faster. It is similar to Amazon’s 1-click and Shopify’s Shop Pay. Most recently, PayPal partnered with Adyen to promote the service.
Read more: 3 reasons why PayPal stock is a smart investment now
PayPal boosted its guidance
The most recent financial results showed that PayPal’s revenue growth has slowed recently. Its revenue rose by 8% in the last quarter to over $7.9 billion. In the past, PayPal was used to make double-digit growth as its popularity rose.
Its total transaction volume rose by 11% to $416 billion while its payment transactions rose by 8% to $6.6 billion. Active accounts continued to fall, reaching 429 million in the last quarter. On the positive side, there are signs that the subscriber loss is falling.
PayPal also boosted its forward guidance for the third quarter and full year. It expects that its revenue growth will be mid-single-digit while its EPS will be between 96 and 98 cents.
What is clear, however, is that PayPal’s growth days are behind and that the company should be valued as a value stock. According to SeekingAlpha, PayPal’s forward P/E ratio stands at 18 while the trailing multiple is 17.
In contrast, Mastercard has multiples of 38 and 35 while Visa has 31 and 30. Block, formerly known as Square, has P/E multiples of 61 and 36. PayPal will need to demonstrate more growth to justify a higher valuation.
PayPal stock price analysis
The PYPL share price bottomed at $50.21 in November last year and has rebounded to almost $75. It formed a golden cross pattern in August as the 200-day and 50-day moving averages crossed each other.
The stock has now flipped the important resistance point at $70.65 into a support level. This was a notable price since it was its highest level since April this year.
Therefore, the path of the least resistance for the stock is bullish, with the next target being the psychological point at $80, which is about 10% above the current level. A break above that point will see it jump to the next point at $100.
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