Since being spun off from eBay in July 2015, PayPal (PYPL -0.31%) has seen its stock price rise 89%, despite falling 78% from its peak. A pioneer in the digital payments industry, PayPal has quickly expanded its standing as a popular checkout option for merchants and shoppers. And along the way, revenue and profits have increased at a steady clip. 

But this year has been a different story. With its shares down big in 2022, should investors buy, sell, or hold PayPal right now? Let's take a closer look at this top fintech stock. 

Facing a slowdown 

In 2021, PayPal posted total payment volume (TPV) of $1.25 trillion (up 33% year over year), revenue of $25.4 billion (up 18%), and adjusted earnings per share (EPS) of $4.60 (up 19%). What's more, the business added a whopping 49 million net new active accounts to its platform during the 12-month period. Due to the coronavirus pandemic pushing people to online shopping and electronic payments, PayPal was flying high. 

Then the calendar turned, and things started changing. Spurred by the Federal Reserve's aggressive interest rate hikes to slow soaring inflation, signs point to a deteriorating economic picture, with many forecasting a recession on the horizon. 

This has delivered a blow to PayPal. Because the company generated 91% of its third-quarter revenue from transaction fees based on the activity on its platform, a slowing economy can hurt, as consumers spend less. Making matters worse is the fact that PayPal's network leans toward discretionary purchases, which shoppers can cut in times of economic stress. 

"We expect inflationary pressures alongside slowing global growth to weigh on discretionary e-commerce spending, which could continue to be pressured in 2023," Chief Financial Officer Gabs Rabinovitch said on the Q3 2022 earnings call.  

In the third quarter, TPV increased 9% year over year, with revenue rising 11%. PayPal added 2.9 million net new accounts during the period. And for the fourth quarter, management predicted revenue will rise 9% versus Q4 2021, with adjusted EPS up 7% (at the midpoint). 

To be fair, these aren't bad numbers. They're just obviously not what shareholders have been accustomed to over the past several years. 

Furthermore, the management team, led by Chief Executive Officer Dan Schulman, no longer thinks PayPal can amass 1 billion active accounts, a lofty goal he established during the depths of the pandemic. PayPal will now focus on attracting high-value users while getting its existing customers to engage more. This will prove difficult in a softer economic backdrop. 

Consider the competitive landscape 

Based on what I've outlined above, it's no wonder that the stock has taken a hit. Shares now trade at a price-to-earnings multiple of 35, which is well below the average of 51 since the company separated from eBay. Despite what might appear to be an attractive valuation, I'm not jumping to buy shares just yet. 

According to Deutsche Bank analyst Bryan Keane, PayPal's global adoption as a checkout option in the month of November fell 8% versus a year ago. But Apple Pay saw usage surge 52%. One probably shouldn't place too much weight on a single piece of data, but I think this is something investors should pay close attention to. 

Does this mean that these digital wallets are commoditized? I don't necessarily think so. PayPal does offer other features through its app, like rewards, bill pay, stock and crypto investing, and direct deposit. Plus, the company has Venmo, which management is still working to better monetize. 

But I think that from a shopper's perspective, checking out with Apple Pay is faster and much more seamless than using PayPal. Furthermore, iPhone users tend to be in higher-income brackets, so they probably have more discretionary income to spend. PayPal losing share to Apple Pay means it is losing these valuable customers, and that's clearly not a good sign. 

The takeaway for investors right now is not to panic and sell the stock. If you're a PayPal shareholder, it's best to keep an eye on trends with digital wallet usage. If the business can continue expanding its account base and TPV, then maybe my concerns are overblown. Therefore, the stock remains a hold, and possibly a buy for those who want to take advantage of a beaten-down price.