- PayPal’s (PYPL) payments business remains solid, growing at 15% per year.
- However, PayPal is slowing growth to focus on growing profit, leading some analysts to walk away.
- PayPal is heavily into cryptocurrency, which adds risk.
PayPal (NASDAQ:PYPL) is doing fine. PYPL stock, however, is not.
So far in 2022, PayPal’s stock is down 50%. From its peak of $308 per share last July it’s down by more than two-thirds. PayPal was due to open April 20 at $103 per share with a market cap of $120.7 billion. That’s less than 30 times last year’s earnings and less than 5 times last year’s $25.5 billion in revenue.
But despite all of this, Goldman Sachs thinks PYPL stock is a screaming buy.
Yet I see you hesitate. As always, there’s a bear case along with a bull one. With that in mind, let’s take a closer look at each case for/against PYPL.
| Ticker | Company | Current Price |
| PYPL | PayPal | $96.38 |
The Bear Case Against PYPL Stock
The bear case starts with cryptocurrency and decentralized finance.
PayPal is into it. If you’re not, you shouldn’t be in PayPal. PayPal bulls like to compare it to Coinbase (NASDAQ:COIN). That makes some people nervous.
Articulate arguments against cryptocurrency, like those of London software architect Stephen Diehl, are starting to be heard.
This is not yet reflected in the market. Crypto has a market cap today of about $1.8 trillion, with Bitcoin having about 42% of it. New coins appear and disappear faster than Instagram influencers. What was hot one day, like Bitcoin Cash (BCH-USD) can be trash the next. Coins that didn’t exist at the start of the year, like Stepn (STEPN-USD), can suddenly have multi-billion dollar market caps.
The most serious coins are stablecoins like Tether (USDT-USD), now worth over $100 billion, and USD Coin (USDC-USD), which claim to trade at 1:1 to the dollar. Advocates say these could cut the price of all transactions, since they would eliminate the complex settlement process banks and credit card processors use now.
Bringing them into the banking system, through regulation, would be a big win for PayPal. On the other hand, PayPal recently laid off its research team on advanced systems like distributed ledgers.
The Bull Case
The underlying business of PayPal continues to grow at over 15% per year. This has some predicting it will be worth over $1 trillion in 2030, making it a true “10-bagger.”
As a simple payments company, PayPal remains solid. PayPal generated $5.4 billion of free cash flow last year, and over $6.3 billion of operating cash flow. That’s expected to continue growing, possibly to $7 billion this year. The slowdown in international payments, where PayPal shines, should be temporary.
Even the bear case from Zack’s reads like a bull one. PayPal expects revenue growth of 15% to 17% this year, with 15 to 20 million new accounts. It’s also focusing on getting more revenue from each account, rather than just opening 750 million new ones by 2025. If that adds up to a sell rating, and it does for Zack’s, consider me sold.
Meanwhile, Tipranks has PayPal stock as only a moderate buy, with just 29 of 40 analysts telling clients to buy it.
Bottom Line on PYPL Stock
PayPal is due to report earnings on April 27, with $6.41 billion of revenue and 88 cents per share of earnings expected. This would represent growth of just 5%, and slightly less profit than a year ago.
PayPal is a lot more vulnerable than traditional payment processors like Visa (NYSE:V). It has a lot more growth potential, but also carries more risk. Its recent fall has returned it to the same growth line as Visa, which has averaged capital gains of 27% over the last five years.
That makes PayPal a great stock for a younger investor, who is willing to sell when it’s hot and wait for it to come down. Traditional investors should stick with Visa or, better yet, MasterCard (NYSE:MA), which has averaged a 43% gain over the last five years and has been moving cryptocurrency into its network for over a year.
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
