Under the guidance of CEO Alex Chriss, who took over the payments company in January, PayPal Holdings (PYPL +1.24%) is taking steps to improve the business and boost the company's margins, which have been declining over the past several years. The company is also expanding its business offerings and appealing to small and medium-sized companies.
Despite fierce competition in the payment space, PayPal continues to hold its own. Here's what investors can look for from the payments company.
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It's been a rocky road for PayPal
PayPal was a huge winner during the pandemic when consumer spending shifted from in-person transactions to those done digitally. The company experienced rapid growth, and investors piled into the stock. At one point in 2021, the stock traded for as much as $310 per share as investors optimistically expected the company's rapid growth to continue.
Under the surface, things weren't so great. PayPal has faced rising competition over the past several years. As a result, the company's take rate, or the revenue it keeps from every transaction, has fallen every single year since 2015.
In addition, the company's rapid pandemic-era growth was simply unsustainable, and it took a different approach that didn't resonate well with shareholders. The stock dropped as low as $50 per share at one point in 2023, or 84% from its peak price.
NASDAQ: PYPL
Key Data Points
PayPal's plan to reignite growth
Since the start of 2024, PayPal has been led by CEO Alex Chriss. Chriss took over the top role at the fintech after spending several years as an executive vice president and general manager for Intuit's small business and self-employed group. Chriss has been leveraging this experience to turn things around at PayPal as he tries to reignite the business and attract more businesses and customers to the payment platform.
One reason for PayPal's falling take rate is due to the growth of its unbranded checkout option, Braintree, compared to its branded checkout. Its unbranded checkout option has grown rapidly, but also produces smaller margins for the company. To reinvigorate growth of its branded checkout, Chriss has the company working on improving it for small and medium-sized businesses with its PayPal Complete Payments Platform.
PYPL Gross Profit Margin (Quarterly) data by YCharts
One of Chriss' goals is to make this platform stand out by improving the checkout experience and enabling one-click checkouts called "Fastlane." The goal of Fastlane is to reduce checkout time while also helping merchants convert more sales.
According to PayPal, Fastlane reduces checkout time by 32% and has attracted some large customers. This year, the company has partnered with Salesforce, Adobe, and BigCommerce. Fastlane is convenient for consumers, who can save their payment information and have fast checkouts anywhere Fastlane is offered.
On Aug. 20, PayPal expanded its partnership with Adyen, the rapidly growing Dutch payments company. Through the agreement, Adyen will offer PayPal's Fastlane to accelerate guest checkout flows for customers in the U.S. and plans to roll this out globally down the road. Although Adyen competes in the payment space, the move helps to validate PayPal's technological advantage with its Fastlane product.
What's next for PayPal
PayPal will continue to roll out its Fastlane product for businesses and grow its PayPal Complete Payments Platform over the next year. The company also plans to expand its advertising business.
The company has a slew of consumer spending data and wants to leverage that data to better connect customers with merchants and convert more sales. PayPal will use artificial intelligence to create targeted discounts and personalized customer recommendations based on customers' shopping experiences.
Earlier this year, PayPal hired Mark Grether as senior vice president and general manager of PayPal Ads. Grether previously helped Uber's advertising grow into a $1 billion business. The opportunity for digital marketing could be huge, with some estimates showing it could grow by 13.6% annually through the next decade.
Over the next three years, analysts project that PayPal's revenue will grow to $38.5 billion by 2027, producing earnings per share (EPS) of $5.66. Based on the company's 2024 estimates, that would represent a compound annual growth rate of 7% and 8% in revenue and EPS, respectively.
Is it a buy?
Under Chriss, PayPal is getting back on track and has done well during this transition year. Volume through PayPal Complete Payments is up 40% through the first half of this year, and the company is continuing to roll out this and other products. Another positive is that PayPal continues to be the most popular digital payment app across all generations, according to The Motley Fool Ascent survey of 2,000 Americans.
PYPL PE Ratio data by YCharts
PayPal stock has increased 43% over the past year but continues to trade at a reasonable valuation. Today, the stock is priced at around 19.3 times earnings and 18 times next year's earnings. At that price, PayPal looks like a solid value stock to buy today and hold for several years as it figures out how to monetize its data better and push out new products.
