Once deemed an overpriced fintech stock, PayPal (NASDAQ:PYPL) stock has since become attractively-priced for investors. Formerly dominant in online payments, PayPal faced heightened competition from Apple, Google, and others. Declining online shopping post-pandemic forced PayPal into less lucrative ventures, squeezing gross margins to 45.8% in Q4 2023. Shares plummeted 80%, leaving a $66.9 billion market cap, raising questions about its future.
Under new CEO Alex Chriss, PayPal is undergoing strategic changes to counter recent declines. Initiatives aim to restore profit margins and bolster earnings, potentially reversing its downward trajectory. Trading comparably to regional banks, even modest improvements could trigger a stock rebound, according to analysts.
At its innovation day, PYPL stock acknowledged its challenges and outlined strategies for improvement. Although falling short of expectations, CEO Chriss highlighted plans to enhance user experience, boost profits, and innovate core products. While lacking specifics, initiatives like Fastlane aim to accelerate transaction completion, garnering analyst optimism for future growth.
A Turning Point
PayPal’s recent earnings report, released on Feb. 7, initially underwhelmed investors despite surpassing Q4 estimates. However, its conservative 2024 guidance disappointed analysts like Gus Galá, who viewed it as strategic in the long run. Galá maintains a $80 price target, anticipating potential upside.
The company’s valuation has significantly shifted, trading at a fraction of its previous multiples. Once a high-growth disruptor, it now resembles a midsize bank in terms of pricing. Aswath Damodaran of NYU notes the shift in perception from growth to value.
Wedgewood’s Rolfe describes PYPL stock as a company needing to demonstrate margin improvement and growth acceleration. First-quarter earnings, expected in May, will offer insight. If PayPal surpasses forecasts, investing in its stock could yield returns, though comparisons suggest its valuation is more aligned with traditional financial firms than fintech peers.
Investment in PPRO
PPRO, a top local payments platform, secured €85 million in a dual tranche funding round to expand in key markets and bolster its global network. Investors include Eurazeo, HPE Growth, PayPal Ventures, and more. CFO Rahul Raswant hailed the strong demand and growth prospects.
Anne-Charlotte Philbert, Growth Managing Director at Eurazeo, emphasized PPRO’s leadership in payment solutions, highlighting its global transaction capabilities. James Loftus, Managing Partner at PayPal Ventures, reiterated their confidence in PPRO’s advancements and ongoing collaboration.
Still the Leader in Digital Payments
When it comes to electronic payments, Paypal’s dominance make it a compelling stock to buy. The company has been there for two decades, with an impressive TPV in 2023 with $1.5 trillion. Its widespread acceptance and rapid TPV growth highlight its market leadership and future growth potential.
Moreover, the platform boasts significant competitive edges, making it an attractive investment. With 428 million active accounts as of Dec. 31, it operates a robust two-sided platform connecting merchants and consumers. This fosters potent network effects, amplifying its value proposition compared to smaller competitors.
By overcoming the chicken-and-egg challenge, PayPal leverages its vast user base to gather extensive transaction data, enhancing authorization rates and fraud prevention. This comprehensive perspective offers a compelling advantage for merchants, strengthening PayPal’s market position.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
