PYPL: Down 33% From Record Highs, PayPal Stock Remains a Buy!
While the broader markets are
trading close to record highs, several stocks have lost momentum
post Q3 earnings. One
large-cap fintech stock
that’s down 32% from all-time highs
is PayPal (NASDAQ:
In Q3 of 2021, PayPal sales rose
by 13% year over year to $6.2 billion. These gains were due to a
26% increase in total payments volume which grew to $310 billion.
In the last 12-months, total payments volume or TPV surged over
$1.2 trillion making PayPal one of the largest fintech companies in
PayPal’s TPV stood at $936
billion in 2020 that included $159 billion from its mobile payment
application Venmo. In Q3, Venmo’s TPV grew by 36% year over
The company’s cash-generating
metrics remained robust as operating and free cash flow rose by 15%
and 20% respectively year over year to $1.5 billion and $1.3
billion. This growth allowed PayPal to repurchase shares worth $350
million in the quarter.
Why PYPL stock lost steam recently?
Despite PayPal’s stellar Q3
results, the stock has declined by 22% in the last month. It seems
investors were unimpressed by management guidance that forecast
revenue between $6.85 billion and $6.95 billion with adjusted
earnings of $1.12 per share in Q4. Comparatively, Wall Street
forecast sales of $7.24 billion and earnings of $1.27 per share in
Q4. In the year-ago quarter, PayPal reported revenue of $6.12
billion and earnings of $1.13 per share.
According to the company’s CEO
Dan Schulman, several factors have contributed to PayPal’s
conservative guidance for the December quarter which coincides with
the holiday season.
Schulman noted, “We are seeing
the impact of global supply chain shortages in our merchant base.
Consumer confidence has weakened with the absence of stimulus
payments. And with the economy reopening, more people may be likely
to do their holiday shopping in-store as confidence in delivery
logistics is depressed from last year.”
Another reason that worried
investors was the 45% decline in payments volume for the eBay
marketplace. Further, eBay (NASDAQ: EBAY)
is now transitioning to a new managed payment system. But, PayPal
may be able to offset the loss in payments volume as it partnered
with e-commerce heavyweight Amazon
AMZN). Now, Amazon
customers will use Venmo’s payment solution starting from
What next for PayPal investors?
Investors should view the dip in
PayPal stock as a buying opportunity. PayPal added 13.3 million net
new accounts in Q3, bringing the total number of accounts to 416
million. eBay too accounted for just 4% of total payments volume in
Q3 and the recent development should not impact PayPal’s top-line
significantly in the future.
PayPal leads the digital payment
segment and its portfolio of products continue to expand. Now users
can send, money as well as invest money on the PayPal platform,
while merchants can benefit from services that include payment
processing, financing solutions, and fraud management.
PayPal is the most popular
digital wallet in North America and Europe
and is used by 75% of the top 1,500
merchants. This enormous
scale allows the company to benefit from a powerful network effect
which will result in strong customer engagement.
PayPal has increased sales from
$13 billion in 2017 to $21.5 billion in 2020. Comparatively, its
pre-tax income has risen from $2.2 billion to $5 billion in this
period. Now, Wall Street forecasts sales to touch $25.5 billion in
2021 and $30.5 billion in 2022 while earnings are forecast to
expand from $3.88 per share in 2020 to $5.38 per share in
Analysts expect PYPL stock to
touch $290 in the next 12-months which is 40% above its current
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