PayPal (PYPL +2.01%) is one of the pioneers of online commerce. But over the past few years, the fintech landscape has ballooned with new competition. While PayPal is still very much a global leader in e-commerce among merchants and consumers, investors have soured on the stock as growth concerns linger.
During the past three years, PayPal stock has tumbled more than 70%. New Chief Executive Officer Alex Chriss took the reins during the latter half of 2023 and has embarked on reorganizing his management team, a move that may suggest PayPal is intent on reinventing itself.
Earlier this month, Chriss sat down with CNBC's David Faber for a panel discussion. Toward the end of the interview, Chriss declared that PayPal was going to "shock the world" during a highly anticipated public unveiling of new features on the payments platform. On Jan. 25, PayPal released an initial view of its new services and Chriss spoke at length about the company's vision to transform itself a more expansive fintech solution.
Let's dig in and assess what's going on at the company.
NASDAQ: PYPL
Key Data Points
Living up to expectations?
PayPal showcased its innovations in a recorded video presentation hosted by Chriss. The company announced a host of new products across the PayPal ecosystem, as well as its peer-to-peer payments app, Venmo.
While each new service is unique in its own right, there was one theme that Chriss hit on over and over again: Artificial intelligence (AI) will be the backbone of PayPal's next phase of evolution.
Image source: Getty Images.
Does AI really fit into the equation?
On the surface, AI has myriad applications for e-commerce. For example, one of PayPal's new features is called Smart Receipts. Simply put, after you make a purchase from a vendor, PayPal will use AI to analyze the data on your receipt and make a personalized recommendation of other products you may be interested in.
The benefits for the merchant are pretty obvious -- this is a mechanism to get shoppers to make multiple purchases and create a more sticky base for vendors. For the consumer, the benefits are that PayPal is helping you find a good deal and allowing you to earn cash back.
Another new application PayPal highlighted was Venmo Business Profiles. (For those who are unfamiliar, Venmo is a payments platform similar to Zelle or Cash App.)
The addition of profiles on Venmo is geared toward helping small businesses broaden their reach. For instance, if you pay a vendor at a store using Venmo, the shopper's transaction history can be seen by other people in the app's newsfeed, which theoretically can put your business on more radars.
While I see the merit in some of PayPal's new services, I have some concerns over its AI ambitions.
What could be in store for PayPal?
For starters, Smart Receipts is far from the only service that makes recommendations based on your shopping patterns. E-commerce juggernaut Amazon has been doing this for years and has more than solid footing when it comes to enticing repeat purchases. Even though the feature itself may bolster PayPal's overall suite, it could ultimately be too little, too late.
On the Venmo side, I question how popular the business profiles will become. Although this is purely anecdotal, I can't tell you the number of times I've noticed a friend using a cool product and they told me that they found the vendor through Instagram.
Although the intersection of social connection and commerce is an interesting one, it's not exactly new. Furthermore, this isn't the first time PayPal has shown an interest in offering its financial service with a social element. While Instagram isn't necessarily an e-commerce platform, per se, it no doubt plays a major role in the discovery of business owners and indirectly facilitating shopping activity.
Additionally, while this is speculation on my part, if PayPal pulls off its AI endeavors, I see the company as a potential acquisition target. Chriss is a product visionary and is no stranger to mergers and acquisitions.
During his tenure as a leader at Intuit, Chriss played a major role in the company's acquisition of email marketing automation platform Mailchimp. This deal served as a way for Intuit to broaden its reach and give customers a more complete, end-to-end solution offering both financial services software and customer engagement tools.
After reviewing PayPal's new product releases, a few things come to mind. First, the company's big bet on AI could very well be the key to unlocking potential and some much-needed innovation. However, I'd caution investors from pouring into the stock solely based on the company's AI vision.
PayPal needs to prove that these investments will yield improved financial and operational performance. Moreover, taking a position in the stock based on speculation of a buyout is also not a prudent investment practice.
As I recently expressed, PayPal stock is historically cheap and an improving macroeconomic picture could bode well for the company. For now, taking a small position in the stock could be a decent strategy, as expectations seem pretty low. However, keeping a close eye on the company is crucial, and management will need to effectively communicate the magnitude by which its AI tools are contributing to the overall business and its long-term prospects.
