What happened
Shares of PayPal (PYPL -2.36%) continued to struggle in the first half of 2023, missing out on the rally in tech stocks as investors worried that it was losing market share to Apple and that growth in its core business was slowing. Additionally, CEO Dan Schulman said he would step down at the end of the year and the company has yet to name a replacement.
According to data from S&P Global Market Intelligence, the stock fell 6% in the first six months of the year, significantly lagging the S&P 500, which gained 15.9%.
As you can see from the chart below, PayPal was actually outperforming the broad-market index early in the year, but fell sharply after it reported first-quarter earnings in early May.
So what
Shares of PayPal were rising early in the year as the company benefited from some positive analyst chatter and news that it would lay off 7% of its staff, or 2,000 employees, at a time when the company has seen growth slow, and, like many other tech companies at the time, was preparing for a potential recession.
In its fourth-quarter earnings report in early February, the company posted results that were essentially in line with expectations and got a modest bump on the news. Total payment volume increased 5% to $357.4 million and revenue rose 7% to $7.4 billion, matching estimates. On the bottom line, adjusted earnings per share rose from $1.11 to $1.24, ahead of the consensus at $1.20. Schulman also said he would retire at the end of the year and that the board is looking for a successor.
Shares traded sideways over most of the next few months as PayPal was unaffected by the regional banking crisis.
The stock then crashed following its first-quarter earnings report in May even though the company beat estimates. What seemed to spook investors was that PayPal lowered its expectations for operating margin expansion due to relative weakness from its core branded business, which carries a higher margin than its unbranded, ancillary businesses.
The stock recovered some of those losses in June as PayPal seemed to benefit from the market rebound, and it raised its share repurchase guidance from $4 billion to $5 billion, showing it aims to take advantage of the sell-off.
Now what
The stock has continued to gain into July and is now positive for the year. While PayPal is experiencing both cyclical and competitive challenges, the company is still the leading digital payments platform, and growth is likely to accelerate as consumer spending picks up.
At a forward P/E of less than 15, the stock looks well priced.
