Last year, shares of fintech giant PayPal Holdings (PYPL 0.34%) fell as investors weren't pleased with the company's decelerating revenue growth. PayPal's guidance for the fourth quarter didn't help things either. The company said it expects revenue between $6.85 billion and $6.95 billion for the period, representing a 12% to 14% increase compared to the fourth quarter of 2020.
The market is accustomed to PayPal delivering higher growth rates than that, which explains why some investors aren't too optimistic about the company right now. But it's essential to look at PayPal's recent results (and guidance) in context. Below, I'll explain why the company's current challenges are temporary and why it remains an excellent fintech stock to buy for 2022 and beyond.
The pandemic tailwind
In 2020, PayPal's business experienced abnormal growth as customers shifted their habits at the onset of the pandemic. Indeed, PayPal itself referred to its second and third quarters of 2020 as some of the strongest recording periods in the history of the company in terms of financial performance.
However, consumer habits were bound to revert to something more resembling pre-pandemic norms eventually, and that's what happened last year. Given this factor, it's not surprising that PayPal's business didn't look as strong last year as it did in 2020. The fintech juggernaut wasn't the only one to experience this pandemic-induced dynamic.
Many other companies -- from streaming platforms such as Netflix to e-commerce specialists like Pinterest -- disappointed investors last year due to slowing growth. When analyzed within this context, PayPal's lower revenue growth rates, while not ideal, don't look as bad.
Exciting opportunities
Last year wasn't a complete dumpster fire for PayPal, as the company made several moves that could help its financial results improve in 2022 and beyond. First, in the third quarter of 2021, PayPal announced that users of its peer-to-peer payment app Venmo would be able to pay for transactions on Amazon's main U.S. website with Venmo.
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Let's consider why this could be a big deal for PayPal. As of the third quarter, Venmo boasted more than 80 million users, 47% of whom would be interested in paying with Venmo when checking out with merchants online, according to a behavior study.
That means more than 37 million Venmo users see value in this new feature the app provides. But that's just a first step for PayPal's Venmo -- albeit a pretty big step considering Amazon's stature -- to become a payment option for as many online merchants as possible.
Venmo makes money by charging fees for the Pay with Venmo features (among other ways). According to management, this feature will be one of the app's most important revenue drivers from here on out. That's why the partnership with Amazon is such a big deal, and investors should expect PayPal to seek other big-name e-commerce companies to partner up with. The company's efforts to monetize Venmo are arguably still in their early innings, which bodes well for the tech giant's future.
Second, PayPal acquired Japan-based buy now pay later (BNPL) company Paidy last year for $2.7 billion in cash; the transaction closed in September. BNPL allows consumers to submit payment for goods after buying them, often with no fees or interest.
PayPal has seen growing adoption of BNPL as customers increasingly seek flexible ways to afford goods and services online. It expects to continue expanding its BNPL offerings in more countries, and the addition of Paidy will help PayPal's ambitions in Paidy's home country. As the company's CEO, Dan Schulman, said: "This [acquisition] will accelerate our momentum in Japan, a strategically important market and one of the largest e-commerce markets in the world."
Don't give up on this promising company
PayPal's stock grew by leaps and bounds in 2020 as investors got a bit too excited by the tailwind it was experiencing due to the coronavirus outbreak. Once it became clear that this tailwind was temporary -- and had begun to slow considerably -- investors ran for the hills. But zooming out helps offer perspective: PayPal has outperformed the broader market in the past two years, three years, and five years.
Thanks to the opportunities it is pursuing through Venmo, its BNPL ventures, and others, PayPal is setting itself up to remain a leader in the fast-growing fintech market for many years to come. That's why investors should look past the company's recent woes on the market. Holding this top tech through the volatility will pay off eventually.
