PayPal Stock At Multiyear Lows On Choppy Fundamentals, Leadership Worries: What's In Store?

Zinger Key Points
  • PayPal's core branded payments business is facing the brunt of competitive pressure.
  • The unbranded business, though growing, has been a drag on margins.
  • Reflecting the risks, the stock has underperformed the broader markets this year.

Payment platforms provider PayPal Holdings, Inc‘s stock PYPL has significantly declined from its previous all-time high in mid-2021. Despite the overall tech rally observed since the beginning of the year, the stock has failed to gain momentum, languishing at lows last seen in September 2017.

Not A Good Payoff For Investors: San Jose, California-based PayPal, co-founded by Peter Thiel, came into being in March 2000. It had its origin as Confinity Inc., a software company founded by Max Levchin, Thiel and Luke Nosek. Confinity launched PayPal in late 1999 and later merged with Elon Musk co-founded online bank X.com.

Following the merger, the company came to be called PayPal, which was acquired by eBay, Inc. EBAY for $1.5 billion in 2002. Thirteen years later, in 2015, eBay spun off PayPal as an independently-traded public company.

PayPal has a namesake branded checkout unit and a suite of unbranded solutions, including PayPal Braintree and PayPal Complete Payments, or PPCP. Braintree provides enterprise-grade processing for merchants and PPCP is an end-to-end, full-stack payments platform serving SMBs and partners.

PayPal's stock did not take off in a big way until the pandemic, and along with other COVID-19 plays, it took off in a big way and rallied to an all-time high of $310.16 (intraday basis) on July 26, 2021.

This marked a strong increase from an $82.07 (intraday) trough reached on March 23, 2020 — a 278% rally in a year and four months.

Chart Courtesy Of Benzinga Pro

At the peak, its market capitalization was $362.53 billion based on the closing price of $308.53 that was hit on July 23, 2021.

Source: YCharts

Good things did not last forever. It began to trace a downhill path after completing a double top formation in early August 2021. The stock is currently languishing near a multi-year low.

Since the start of 2023, the stock has lost nearly 13% compared to the S&P 500 Index's 9.5% gain. The company's market cap is a far cry from its peak value of $69.23 billion.

See Also: How To Buy PayPal Holdings, Inc. (PYPL) Stock

What's Ailing PayPal? PayPal's fundamentals have faltered, with total active accounts rising merely 1% year-over-year to 433 million in the first quarter of 2023. The metric declined from 435 million in the previous quarter.

Payment volume rose 10% in the quarter and revenue was up 8.6%. Much of the gains came from the Braintree business, which saw payment volume growth of 30% compared to 6.5% growth of its branded legacy checkout business and 9% growth at Venmo, Financial Times said in a report.

The unbranded business, however, is less lucrative than the branded business, the report said. To make matters worse, the branded business is facing increasing rivalry from tech companies that have forayed into the payments business as well as the emergence of upstart ‘Buy Now, Pay Later' companies.

Apple, Inc. AAPL, Alphabet, Inc. GOOGL GOOG, Affirm Holdings, Inc. AFRM and AfterPay are among the companies PayPal is contending with.

PayPal banked on cost cuts to improve profitability but this option cannot continue to help the company, FT said.

Near-Term Risks: Bernstein analyst Harshita Rawat highlighted the long-term stock outlook, gross profit growth outlook due to deteriorating mix and transaction margins, and CEO succession as the three near-term risks faced by PayPal.

The company announced in early February that President and CEO Dan Schulman would retire on Dec. 31, 2023. Schulman joined PayPal in 2014 just ahead of the 2015 IPO. Four months after the announcement, no successor has been named yet.

Sell-side, however, is fairly bullish and expects the stock to climb over 56% from current levels, based on the average analysts' price target of $96.83, according to TipRanks. Out of the 27 analyst rating the stock, 18 are bullish and 9 are neutral on the stock.

PayPal shares closed Tuesday's session 3.04% higher at $62.05, according to Benzinga Pro data.

Read Next: PayPal Faces Unbranded Margin Pressure: 5 Analysts On Q1 Print

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