The 2020s have been quite an up-and-down period for PayPal (PYPL 2.48%). After all, it was a star stock during the pandemic, but it slumped a bit when U.S. consumers started to emerge from their stay-at-home isolation.
A good 2024 was followed by a discouraging earnings report early this year, and again the stock is in something of a slump. Does it have a decent chance of rising from its current sub-$80 level, and perhaps even approaching pandemic-era price peaks?
Bottom-line blues
PayPal's digital payments platform is so widespread that it's almost unnecessary to introduce the company. For those who somehow haven't come across it yet, it's a long-standing transaction system that facilitates online, mobile, and even in-person purchases and other monetary transactions.
Many are familiar with the brand, to the point where its app is far and away the No. 1 mobile digital payment platform in the U.S., according to recent research from The Motley Fool. It trounces worthy rivals such as Block's Cash App and the bank-run app Zelle.
As a result, PayPal has a massive user base, with total accounts numbering roughly 434 million at the end of the fourth quarter of 2024. Even if most of those folks only check out with PayPal occasionally, this produces a flood of revenue. The transaction revenue that forms most of its top line was nearly $7.6 billion in the aforementioned quarter alone.
All told, PayPal's fourth quarter revenue was a shade under $8.4 billion, for 9% year-over-year growth. While that's certainly a respectable increase, it's either in the ballpark or just under the recent rises of some incumbent payment systems operators like card giants Visa and American Express.
Compounding that, and again in contrast to those two muscular rivals, PayPal's profitability lately has been falling. We're not talking a scary tumble down the mountain here. Nevertheless, the company's non-GAAP (generally accepted accounting principles) adjusted net income slipped by 2% year over year in the quarter (to just over $1.2 billion).
NASDAQ: PYPL
Key Data Points
Zooming out some, PayPal's gross margins slid notably after the pandemic era, with quarterly figures landing in the mid-40% neighborhood. That was a comedown from the 60% level it teased when we were all indoors buying items on the internet and avoiding direct contact with each other over pandemic fears.
So for many investors, PayPal's recent story has been comparatively unspectacular growth and withering profitability. I think this largely explains why the market is cool on the stock just now.
Boosting the brand
Yet I'm encouraged that management, headed by relatively new CEO Alex Chriss, is doing something about it. Chriss and his team are clearly pushing for wider adoption and seeking competitive edges. Witness the company's marketing campaign (featuring comic actor Will Ferrell in a set of memorable TV commercials) touting its service as a go-to option at the checkout counter. Additionally, the company's Fastlane technology is a neat digital shortcut, facilitating quicker and smoother online purchases.
The thing is, initiatives like these take some time before they're effective. When the average American consumer thinks "convenient means of payment," they're much more likely to picture their Visa or AmEx cards than their PayPal account. And while Fastlane's take-up by merchants has been impressive, it isn't approaching ubiquity -- at least, not yet.
So ultimately I think PayPal is a stock that will reward patient investors -- those folks who can tolerate a few more quarters that disappoint the market. But the company has a sensible strategy to move itself ahead, and that user base gives it a strong underpinning for its ambitions. I think it's worthy of a buy, although no one should expect big price pops over the short- or even medium-term.
