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Fintech company PayPal (PYPL) has quickly gained global recognition for its user-friendly platform that provides services in 25 currencies and over 200 countries. However, slowing growth has caused a drop in the company's stock price, which is down 16.5% from its 52-week high.
The stock has also gained just 6% year to date, while the broader S&P 500 Index ($SPX) has gained 10%.
Nonetheless, in its recent Q4 earnings results, management highlighted that the company is undergoing a transition, which could help boost its financials. Wall Street is cautiously optimistic about PayPal's stock. Let's see if PayPal is a good buy right now.
PayPal’s Q4 Showed Resilience
Several factors have influenced PayPal's growth over the years. Starting with its separation from eBay in 2015 to ongoing macroeconomic pressures, all of these have acted as a headwind. However, transaction volumes continue to rise, driving revenue growth.
In 2023, PayPal had 426 million total active accounts, resulting in an 8% year-on-year revenue increase to $29.7 billion. Adjusted earnings in 2023 increased by 24% compared to 2022. Last year, PayPal expanded its C-suite leadership team and appointed a new CEO. A new leadership team and its strategic initiatives may help the company regain its footing in the coming years.
AI Could Boost Growth
PayPal also made significant changes to its existing offerings, as well as some new offerings using artificial intelligence (AI). It introduced AI-powered smart receipts that will allow customers to track their purchases and receive suggestions for future purchases.
The company also introduced FastLane, a one-click guest checkout process that allows customers to avoid the time-consuming process of entering information after each purchase. During the pilot phase, FastLane reduced checkout times by up to 40%.
Furthermore, the company is redesigning its branded checkout process with facial recognition software to make it more efficient.
Management also believes that its size impacted its profitability, so it plans to reduce its global workforce by 9% by 2024. CEO Alex Chriss stated, "2024 is a year focused on execution to position PayPal for long-term success."
Like Wall Street, management also has a cautious outlook, expecting adjusted EPS to be in line with 2023 EPS of $5.10. Analysts, on the other hand, expect a slight increase of 0.60% to $5.13 per share, along with a 7% rise in earnings. In 2025, however, earnings are expected to rise by 9.8%, followed by a 7.8% growth in revenue.
What Is Wall Street Saying About PayPal Stock?
While new growth strategies under a new leadership team have the potential to restore PayPal's growth trajectory, it will take time. On that topic, Bank of America Securities analyst Jason Kupferberg advised investors to be patient, as 2024 marks a transitional year for the company. The analyst believes that the company's new strategies will not have an immediate impact. As a result, he has given the stock a "hold" rating and a price target of $64.
Morgan Stanley also recently reiterated their “hold” rating with a target price of $62.
Overall, Wall Street rates PayPal stock as a "moderate buy.” Out of 38 analysts covering the stock, 23 rate it a “hold,” while 12 rate it a “strong buy” and three rate it a "moderate buy.” The mean target price for the stock is $69.56, which is 6.8% higher than current levels. The stock's high target price of $85 implies a 30.5% potential upside over the next 12 months.
PayPal is trading at 11 times forward 2025 estimated earnings, compared to peer Block (SQ), which is currently trading at 20 times forward 2025 earnings.
The Bottom Line on PayPal Stock
PayPal's lukewarm growth may not appeal to investors right now, but as the company completes its transitions and macroeconomic conditions improve, it has a lot of potential. I believe PayPal's stock is currently reasonably valued, given its long-term prospects in e-commerce and digital finance.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
