Shares of financial-technology (fintech) pioneer PayPal (PYPL 2.90%) dropped 13.8% in 2023, according to data provided by S&P Global Market Intelligence. And late in the year, the stock was even down as much as 29% before rallying slightly during the last couple of months.
Looking at the full-year chart is helpful in identifying the defining moments of 2023 for PayPal. As seen below, the stock had outsized drops in February, May, and August, which coincides with releasing quarterly financial results.
When it announced financial results for the fourth quarter of 2022 on Feb. 9, PayPal also announced that longtime CEO Dan Schulman planned to retire. Shulman's replacement, Alex Chriss, was named on Aug. 14. But judging by the stock performance, the announcement did nothing to boost investor confidence.
Look no further than its quarterly financial results to explain the lack of investor confidence. The company's net revenues were only up 7%, 9%, and 7% in Q4 2022, Q1 2023, and Q2 2023, respectively -- some of its slowest growth rates ever.
Moreover, PayPal's free cash flow was down in the first half of 2023 compared to the comparable period of 2022 even when making substantial adjustments for one-time expenses.
PYPL Revenue (Quarterly YoY Growth) data by YCharts.
With growth slowing, free cash flow dropping, and uncertainty regarding PayPal's leadership and future, investors simply weren't excited about PayPal stock in 2023.
How bad are things for PayPal?
On one hand, PayPal's trailing-12-month revenue of $29.1 billion is at an all-time high. So investors need to be careful not to paint an overly negative picture here. There are still tons of PayPal users, and the company is still relevant.
On the other hand, stock prices tend to follow profits over the long term, and PayPal's profitability is down. Adding insult to injury, PayPal's free-cash-flow per share is also down despite the company using almost all of its cash flow in recent years to repurchase shares. Therefore, investors were grappling with legitimate concerns in 2023.
But change is in the air
Chriss officially took over PayPal's CEO duties toward the end of September. Since then he's completely redone the executive leadership team, signaling that things aren't business as usual for the company.
One of the changes coming in 2024 regards PayPal's buy now, pay later (BNPL) business. There's good reason to believe that funding BNPL has held down the company's cash flow. In June, however, it reached a deal with KKR to fund its BNPL business, and the deal was expected to close at the end of 2023.
In conclusion, PayPal's profits could rebound in 2024 if BNPL was indeed the cash-flow culprit. Moreover, a new leadership team could invigorate the company's vision and stimulate growth. Therefore, this coming year could be better for PayPal stock compared to its lackluster performance in 2023.
