The road to investing success is paved with mountains, molehills, and ditches. If you only invest in secure stocks, your money probably won't skyrocket, but it will grow at a solid and steady pace. If you have more of an appetite for risk, you're likely to face many ups and downs, but even one amazing growth stock can deliver enormous, life-changing gains for your investing account.
That's why it's important to diversify. If you make any unfortunate investing decisions, the good ones should more than balance them out. It's also important to invest for the long term, which gives your stocks the best chance at success. Looking back over the past eight years that PayPal (PYPL 2.90%) has been a public company, it hasn't been the success investors were hoping for. Let's see what that means and if it can change.
A little history and context
When I talk about PayPal going public, I mean for the second time. PayPal first went public in 2002, but was acquired soon after by online marketplace eBay. It was spun off as a separate company and had another initial public offering (IPO) in 2015, so PayPal as a stock is really fairly young.
In its first four years as a public company, leading up to the pandemic, PayPal demonstrated steady growth and increasing profits. The stock price reflected that, gaining about 130%.
The pandemic changed all that. Sales skyrocketed as consumers adopted digital payments amid the lockdowns, and by the summer of 2021, PayPal stock had gained another nearly 250%. If you had sold your $1,000 initial investment at that time, you would have come away with almost $8,000. But why would you have done that? PayPal was on a high, and it looked like the wave of the future.
Unfortunately, things have turned down since then.
Why PayPal stock has cooled off
PayPal has faced some major challenges since that time. Part of that is the sheer growth it experienced in a very short period, making it a difficult feat to build on top of that.
Next is new competition. When digital payments took off as the pandemic broke out, the competition didn't sit still for too long. Many other tech companies launched competing products cutting into PayPal's market share. Products like Alphabet's Google Pay and Apple Pay have become popular payment apps, while companies like Shopify have launched their own digital payments infrastructure. Several buy now, pay later companies have sprouted, and many digital banks have opened their virtual doors.
Many of the new technologies supplant the kinds of services PayPal offers, making it less of a need for customers who relied on it before. Investors aren't seeing so much of a growth story anymore.
That's why since the highs in 2021, PayPal stock is now down almost 80%. If you had held on to your $1,000 investment, you'd have just $1,661 today, or a lot less than if you'd invested in an S&P 500 index fund.
Data source: YCharts
Why the situation may not be as bad as you think
Let's be clear about some of the positives. PayPal has continued to build on its sales every quarter. Profitability hasn't been as consistent, but PayPal is still a highly profitable company.
It's still the most recognizable name in digital payments and the dominant leader in the industry, with $377 billion second-quarter total payment volume. It's inking new deals and maintaining its top spot, and it's not easy to displace a forward-thinking market leader.
The company announced a new chief executive officer last month, and a new, visionary leader could be the spark the company needs to jump-start its brand and generate more investor enthusiasm. As it stands now, the stock price reflects investor sentiment more than performance.
With this dismal return, how should you envision the future?
PayPal has plenty of room to run. E-commerce is expected to keep growing, and PayPal will benefit organically. This is not the end of its story.
Consider that a stock like Amazon is down during the past three years, and there have been times over its history that it's lost a huge percentage of its total value. PayPal stock hasn't performed well in this short stretch, but it could climb back up in a huge way.
