As of this writing, PayPal Holdings (PYPL 0.34%) stock is down roughly 37% from its all-time high. It's trading a little bit higher than it was a few days ago but this is still the biggest drop ever for PayPal since it became a stand-alone public company in 2015. This drop caught the eyes of Motley Fool contributors Jon Quast and Matt Frankel. In this video from Motley Fool Backstage Pass, recorded on Nov. 29, and they discuss whether this was an opportunity to buy the fintech stock.
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Jon Quast: Well, I'm going to move right along to our next one here on "The Rank," and that is PayPal. What is amazing to me about PayPal, this is the one that I'm most shocked about, how far it is down, of the companies on this list.
I wanted to point this out down around 40% from its all-time high earlier this year. This is PayPal stock since its IPO in 2015. The most it has ever fallen is around 25% from its all-time high. We're looking at 40% right here. This is an unprecedented drop with PayPal.
What is going on here? Definitely some of the same things that we talked about before, second quarter earnings came in, it was a little bit lighter than what analysts were expecting, the guidance was a little bit softer than what they had hoped for. Another thing that happened was Square, one of its rivals, peers, acquired a company called Afterpay for, what was it, $29 billion. This is a buy now, pay later. [laughs] We'll see. But the analyst community came in when they saw Square make this big splash in the buy now, pay later, and they said: "This is a problem for PayPal going forward. This is directly infringing on their turf and PayPal is not doing enough to win this space." Therefore, some downgrades started coming in for PayPal. This also hammered PayPal stock.
When I look at PayPal and the reason why this is so shocking to me, did the stock it a little bit of ahead of itself? Maybe. Yeah, I think that's totally reasonable to say that. At the same time, this business, the fundamentals are still, to me all pointing in the right direction. Quarter after quarter, they're showing the customer growth sequentially. The customers, their users, are using PayPal services more on average, every single quarter than they were previously. That's a big part of what PayPal is trying to do. Offer them services, offer them products where they are transacting more and more.
You know what, PayPal didn't make a big splash in buy now, pay later. They built it in-house. I think that is something to me, I liked that a lot better as a shareholder. I'm pointing this out with all three of the companies that I've looked at so far, but I did want to point out that on a valuation basis. That's Max. If you go back, I just hit three year there. This company, by and large is back inside of its historical valuation range. On a profitability point of view, you could even say that it is cheaper than it's ever been.
This is interesting to me. The business seems to be performing very well. I think that the big long-term trend here is that we're using less cash and we're going more digital, that's definitely in PayPal's favor. A little bit of inflation going on, that also works good for a company that generates revenue by processing payment volume. I think there's a lot to like here with PayPal going forward.
Jason Hall: Matt, I'll defer to you if you want to speak on for that, I have never found it a very interesting business. [laughs] That's really it for me. I can't say much more than that. That's it for me.
Matt Frankel: I haven't bought PayPal shares because I was a Square shareholder and it seemed silly to own both. Although they're not really direct competitors in a lot of ways. I agree with Jon in the sense that, this is probably the one I'm most surprised about that it got hit so hard because the numbers were pretty solid. I don't really see anything in the company's latest earnings report that justifies a 40% fall from the highs. It's not a cheap stock, I would say. It's very highly valued with $1.2 trillion of annualized payment volume flowing through it. The Venmo platform that is, in my opinion, just scratching the surface.
This is one that I haven't bought. I got shares a while ago from the eBay spin-off. I was an eBay shareholder and ended up selling those but it's on my list to take a closer look at right now.
