Shares of PayPal Holdings (PYPL 2.90%) gained 11% in November according to data provided by S&P Global Market Intelligence. Investors were impressed with the new CEO's first earnings report, and it also benefited from an overall market rally.
Still the fintech to beat
PayPal is the leader in digital payment processing and peer-to-peer payments, even though it's been slowing down since its highs early in the pandemic. It processed nearly $388 billion in volume in the 2023 third quarter, a 15% increase over last year, and it has 428 million active accounts.
Revenue increased 9%, on a currency neutral basis, over last year, and adjusted earnings per share (EPS) increased from $1.08 last year to $1.30 this year in the third quarter, both ahead of management's guidance. Management raised guidance for full-year EPS to increase 21% to $4.98.
These were positive signs for a company that has been losing steam over the past two years. Critics say that PayPal has lost its edge, and that slowing growth and pressured profits indicate that it has fumbled with no clear way forward. There are many new, smaller fintechs that have invaded its territory and are resonating with customers, offering improved digital financial services.
A new CEO and a new growth strategy
This was the first report under new CEO Alex Chriss, who took over for Dan Schulman at the end of September. He brings a fresh approach to PayPal as it looks for new direction, and with two months on the job, he has demonstrated the ability to bring the company into its next iteration.
Something that was already in the works is the new focus on active accounts as opposed to creating any new accounts. Active accounts have been steadily decreasing over the past few quarters, which could be reason for alarm.
Management explained that it was investing in active accounts while letting go of inactive accounts to make its resources work better, and so far, that's playing out. Transactions per active account increased 13% over last year in the trailing 12 months.
A few years ago, PayPal was working to bring out what it called a Super App with an all-under-one-roof approach to digital financial services. Most of that has come to fruition, but the flip side of that was that competitors introduced popular individual services. PayPal is now improving specific services to better compete in fintech.
It's also been struggling through an overall retail rut, with many retailers (and specifically e-commerce retailers) dealing with the fallout of inflation combined with a return to physical stores. Both of these trends look like they're reversing, and PayPal is well positioned to benefit.
PayPal stock is still down about 80% from its highs in 2021, and now looks like a great time to buy shares.
