PayPal (PYPL) stock price has underperformed the broader market this year as its troubles have continued. It has dropped by over 5% this year while the Global X Fintech ETF (FINX) has risen by almost 2% while the ARK Fintech Innovation ETF (ARKF) has barely moved. 

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PayPal’s growth concerns

PayPal has moved from one of the top fintech companies in the US to one that is continually struggling. Its stock has crashed from over $300 in 2021 to about $58 today while its market cap has slumped from $300 billion to $60 billion. 

The company’s main challenge is that it grew too fast during the pandemic as most people focused on digital transactions. At the time, its total users jumped to over 435 million and its annual revenue jumped from $17 billion in 2019 to $21 billion in 2020. Its active accounts have dropped to 427 million. 

PayPal has also become a victim of the competitive fintech industry. While the number of immigrants to western countries has grown, many of them are opting for alternative money transfer solutions like SendWave, Remitly, and Wise. 

Its unbranded business has also faced intense competition from the likes of Apple Pay, Stripe, and Google Pay.

Despite all these, PayPal’s business has continued growing, albeit at a slower pace than it did in the past. Its annual revenue rose from $17.7 billion in 2019 to over $29.7 billion in the last financial year. Its net income has also risen from $2.45 billion to $4.26 billion.

PayPal’s turnaround strategies

PayPal is working to save its business. It replaced its Chief Executive in 2023 and has recently appointed Enrique Lores as a new independent board chair and Srini Venkatesan as the Chief Technology Officer. 

The company also launched the PYUSD stablecoin in 2023 and most recently, it expanded to the Solana blockchain. Data shows that the PYUSD stablecoin has accumulated over $586 million in assets, making it one of the biggest stablecoins in the world.

A stablecoin is one of the easiest ways for a company like PayPal to make money. PayPal makes money by taking a cut of the transaction costs and by investing the reserves in safe assets like Treasuries. 

For example, if its assets remained steady at $586 million, the company would comfortably make $24 million by just investing in the 10-year Treasuries. 

However, PayPal’s challenge is that the stablecoin industry has become highly competitive, with Tether being the dominant player. 

PayPal earnings ahead

The next important catalyst for the PayPal stock price will be its earnings, which are scheduled for Wednesday this week.

In its most recent results, the company said that its total payment volume rose by 14% in the first quarter to $403 billion. Its net revenue rose slightly to over $7.6 billion while its net income rose by 12% to $888 million. PayPal also increased its operating margins by 98 basis points to 15.2% during the quarter. 

Analysts expect that PayPal’s revenue for the quarter came in at $7.18 billion, down from the $7.29 billion it made in the same period in 2023. They also expect its annual revenue will be $29.4 billion this year. 

Analysts have mixed opinions about PayPal stock. Some believe that the recent challenges are transitory and that the company will emerge well in the future. In a recent note, analysts at Susquehanna boosted their outlook from neutral to positive.

However, other analysts expect that its slump is here to stay. For example, analysts at William Blair downgraded the company from outperform to market perform and lowered their target.

Altogether, the average estimate is that PayPal stock price will rise to $70.40, up from the current $58.30. 

I believe that PayPal should be viewed differently than how it was seen a few years ago. In the past, the company was seen as a growth company. Today, it should be seen as an undervalued stock as it trades at a forward P/E ratio of 15.6 and a PEG ratio of 0.21. Its forward EV to EBITDA stands at 9.4. All these figures are lower than the S&P 500 index. 

PayPal stock price analysis

PYPL chart by TradingView

Conducting a technical analysis before earnings is often a risky thing since companies tend to have major volatility before and after. On the daily chart, we see that the PYPL stock price has already moved below the rising wedge pattern. It has also retested the lower side of this pattern and has crashed below the 50-day and 100-day moving averages.

PayPal also remains below the 50-day and 100-day moving averages. Therefore, its outlook is moderately bearish into its earnings, a move that will see it move to the key support at $50. On the positive side, with the company having weak sentiment and expectation, a rebound cannot be ruled out.

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