PayPal (PYPL +1.10%) stock has had a bit of a resurgence during the past year, increasing 29% since the beginning of 2024. CEO Alex Chriss, who took over the top role in late 2023, is looking to improve its offerings and revamp its service after investor concerns about slowing growth.
Its recent results, however, didn't exactly deliver what investors hoped for, and the stock plunged 13% in the days after its latest earnings announcement. However, here are three reasons the stock presents a compelling buying opportunity for long-term investors today.
NASDAQ: PYPL
Key Data Points
1. PayPal has a strong position in the digital payments industry
PayPal operates in the digital payments industry and has been a leader in ushering in this new era of commerce since its founding in 1998. The company has forged a reputation as a trusted mover of money and is one of the most popular digital payment apps in the U.S. today.
According to The Motley Fool Ascent survey of 2,000 Americans, PayPal is far and away the most popular digital payment app across all generations, from Gen Z to baby boomers. In the survey, 85% of respondents who use digital payment apps use PayPal. Block's Cash App was second, at 54% of respondents, while Venmo (another PayPal offering) was third, at 38%.
The popularity of PayPal shows its firm footing and robust network effects, which took decades to establish. While it has faced doubts about its growth trajectory, it's still expanding. Last year, the company's total payment volume increased 10% to nearly $1.7 trillion, while its operating income rose 6% to $5.3 billion. It also generated $6.8 billion in free cash flow -- what's left of cash flow after capital expenditures -- and initiated a $15 billion stock buyback program.
PYPL Free Cash Flow data by YCharts.
2. Revamped offerings could kick-start growth
PayPal stock could get a considerable boost if it can reignite growth, which Chriss has been working on with his team during the past year and a half. One concern among investors is the payment giant's slowing growth and narrowing margins.
Chriss, who headed up Intuit's small-business and self-employed group, is looking to breathe life back into PayPal's products, make them more appealing, and kick-start growth. One of his first tasks was to revamp PayPal's checkout options and better serve small and medium-sized businesses.
One product that has seen early success is Fastlane by PayPal. Here, PayPal looks to enhance the check-out experience and enable one-click checkouts for all customers with a PayPal account. According to the company, this service reduces checkout time by 32% and has attracted big-name customers, including Salesforce, Adobe, and BigCommerce.
The company has also become a payment processor for Shopify Payments in the U.S. and has partnered with Amazon to bring its checkout option to businesses using Buy with Prime. The company will expand on this during the year, which is where Chriss says "there is a significant opportunity."
3. PayPal Ads presents another avenue for growth
PayPal has access to a slew of payment data across its 434 million active accounts. It wants to monetize this to better connect customers with merchants and help convert more sales. The company plans on using artificial intelligence (AI) to create personalized recommendations and targeted discounts based on customers' shopping habits.
Image source: Getty Images.
To help expand its digital advertising platform, PayPal hired Mark Grether, formerly of Uber, where he built the company' advertising unit into a $1 billion business. He also headed up one of the largest independent advertising platforms before selling it to Amazon in 2019.
According to some estimates, global digital marketing could grow by 9.5% annually during the next decade and might be another significant growth driver for PayPal.
A good buy at a reasonable valuation
PayPal is well-positioned among consumers in the U.S. as the top digital payments app and it continues to grow steadily as it builds on its business and improves its offerings. I like the upside growth potential of the advertising business.
These potential catalysts, coupled with PayPal's cheap valuation at about 12 times free cash flow, make it a solid stock to buy the dip today and hold for the long haul.
