After falling 14% last year, will PayPal bounce back in 2024?
As the technology sector soars, many of the slumping fintech companies are set to recover in 2023. However, one of the oldest payment fintechs paypal holdings (NASDAQ:PYPL) wasn’t one of them. While some competitors, such as Block, posted profits last year, PayPal ended 2023 down 14%, trading at about $60 per share.
Could this be the year PayPal bounces back? There are some promising signs that things could get better.
As cheaply as possible?
PayPal was one of the first online payment companies when it launched in 1999, and was shortly afterwards acquired by eBay as a payments provider before being spun off and taken public in 2015. In addition to market-leading PayPal, Venmo has emerged. We have solidified our position as a market leader based on our platform. In 2020, the pandemic caused a surge in usage and the stock rose about 116%, and it continued to soar in 2021, hitting a high of $308 per share in July before plummeting.
Since then, PayPal has lost about 80% of its value. There are many reasons for this, starting with the economy. Inflation and higher interest rates have led to a decline in consumer spending, which has impacted PayPal’s Total Payment Value (TPV). The end of the pandemic has also had an impact in that many people are no longer forced to buy online. Additionally, more and more competitors are emerging in this space, eating into PayPal’s market share. But there were also internal problems. During the company’s massive growth phase, it made too many acquisitions that were not successful, which not only increased its costs and debt, but also led to a lack of focus on its core business.
The good news is that PayPal is still the market leader in this space with about 42% market share. The next largest competitor is Stripe with about 20%. However, this has decreased from around 50% in 2021, resulting in a loss of share.
Another positive thing for investors is how cheap this growth stock is. While many other fintechs are overpriced due to the technology surge in 2023, PayPal is significantly cheaper than it was at the start of 2023. Its price-to-earnings (P/E) ratio is just 18. The end of the bear market in December 2022. Even better, its forward P/E ratio is just 10.9 and its five-year P/E to growth (PEG) ratio is 0.5. A PEG below 1 indicates the stock is undervalued relative to expected earnings growth.
Could PayPal Go Lower? While possible in the near term, lower valuations and other trends suggest solid gains could come in 2024. Analysts’ median price target is $70 per share, which would represent a 19% increase from current prices.
PayPal’s low prices and market share aren’t the only factors that could drive growth. There have been big changes at PayPal over the past few months. They include a new CEO, Alex Chriss, who replaced longtime CEO Dan Schulman in September, and a new CFO, Jamie Miller, who came from Ernst & in November. young.
On the third quarter earnings call, Chriss acknowledged that the company was too thinly spread and needed to refocus on cost management and targeted growth.
“I believe our cost base and complex structure are slowing our growth. There is an opportunity to accelerate revenue growth while reducing costs, allowing us to further increase operating leverage,” Chriss said on the call. “I am in the process of evaluating our most profitable growth priorities and aligning our resources with those priorities. We will become a leaner, more efficient and more effective company, delivering greater speed, innovation and impact for our customers.”
PayPal saw a 15% increase in TPV and an 8% increase in revenue in the third quarter, but earnings per share fell to 93 cents per share from $1.15 in the third quarter of 2022. This was primarily due to increased credit losses and lower underwriting rates. It is made per transaction. Among the many factors affecting takeover rates were pricing pressure and reduced foreign transaction fees.
So while this is largely a positive development, it will be interesting to hear Chriss’ plans for 2024 and the company’s guidance going forward. This should be revealed in the company’s fourth quarter and year-end earnings call on February 8th. PayPal could also see an economic tailwind later in the year if interest rates start to fall.
Overall, PayPal has had a tough few years, but it appears poised to bounce back in 2024.
