PayPal (PYPL -1.04%) has taken investors on a bit of a roller coaster ride since it was spun off from eBay and went public in 2015. The stock was a big winner as consumer preferences shifted to digital payments, and the business surged during the pandemic when digital payment adoption accelerated. The past few years have been more difficult for PayPal, and the stock now trades about 77% below its all-time high set in mid-2021.
New CEO Alex Chriss and his team have been working to generate a turnaround, and they seeing some progress. Along with innovating new product offerings for merchants, the fintech has made some significant headway in establishing revenue-generating partnerships with major companies.
Here's why investors should be optimistic about recent developments.
NASDAQ: PYPL
Key Data Points
PayPal's business is evolving
The rise of digital payments attracted plenty of new competition, including Block's Cash App, Apple Pay, and Zelle, the digital payments network run by a consortium of major banks, including Bank of America, JPMorgan Chase, and Wells Fargo. While PayPal is still the most popular digital payment app across all user age groups, according to The Motley Fool Ascent survey of 2,000 Americans, rising competition has weighed on the fintech. PayPal has seen its margins fall every year since its initial public offering. Its rapid pandemic-era growth rate couldn't be maintained and led to a shift in focus for the company, which sent the share price spiraling downward throughout 2021 and 2022.
Former CEO Dan Schulman retired at the end of 2023, opening the door for Chriss, who previously worked for Intuit managing its small-business and self-employed group. Leaning on this experience, Chriss has made 2024 a transition year for the company. PayPal is making a big push to innovate its technologies to attract and keep users as well as provide appealing offerings for merchants.
The fintech recently expanded its partnership with Adyen
One product that has seen early success is Fastlane by PayPal. Fastlane promises to improve guest checkout (which allows shoppers to make an online purchase without the need to create an account with an e-commerce site). Fastlane reduces checkout time by 32% compared to traditional guest checkout options, while helping merchants complete more sales (the conversion rate is now 80%).
Fastlane by PayPal is popular with other companies as well, and partners include Salesforce, Adobe, and BigCommerce. Its Fastlane technology is also available through PayPal's other checkout options, including Braintree and PayPal Complete Payments Platform. Guests can save their payment information, which can be used wherever Fastlane by PayPal is available, which could provide it with a strong network effect among merchants.
Image source: Getty Images.
On Aug. 20, investors received more validation of Fastlane when PayPal reported an expanded partnership with Adyen, the rapidly growing Dutch payments company. Through this expanded agreement, Adyen will offer Fastlane to accelerate guest checkout flows for customers in the U.S. and plans to roll this out globally down the road.
Although Adyen is viewed as a competitor to PayPal, this move helps solidify their relationship and validates PayPal's technological advantage with Fastlane. Not only that, but Adyen itself is also growing quickly, having won over the business of Microsoft, Uber Technologies, and McDonald's in recent years.
Chriss told investors during the company's second-quarter earnings call that feedback on Fastlane has been promising, and companies confirm higher conversions and quicker checkouts. The CEO is optimistic that Fastlane will enable PayPal to capture 60% of e-commerce purchases made without a branded market. This segment is customers using manual card entry, which has low conversion and is generally a poorer customer experience.
PayPal is trending in the right direction
Overall, PayPal is making solid progress in the middle of its transition year. This is a great way for the company to grow its branded checkout options and boost its margins, which have been a point of concern among investors and analysts.
PayPal stock is trading up 22% since its second-quarter earnings announcement in late July, but it is still relatively cheap at 17.4 times earnings and 2.5 times sales. Both of those valuations are well below peak valuations set just a few short years ago. PayPal is making headway, growing partnerships, and expanding Fastlane adoption, which is precisely the kind of progress long-term investors want to see.
