Even as PayPal (NASDAQ:PYPL) stock flies under the radar among stock price declines in technology companies, you should not overlook its intrinsic value.
PayPal is a global payment service provider. It was founded in 1998 to shift commerce on the Internet from a model based on transactions to one based on relationships.
PayPal has been able to do this because of its unique business model. PayPal’s online payments service offers consumers a fast, easy way to send money through the Internet, which has allowed PayPal to grow into a company with 325 million active account holders worldwide.
The price point for PayPal is why it is generating so much attention. It has corrected by over 60% since the start of the year. And therefore you can make the case of the company as a contrarian play.
Since its inception, PayPal has been open to changes and was one of the first major companies in the business world to accept cryptocurrency in October 2020. It has also acquired many businesses in recent years keeping its portfolio very active. The units involved include Braintree, Paydiant, Honey, Venmo, PayPal Credit Xoom, Corporation Zettle, and Tradera, which perform different functions.
However, there are a few risks that will weigh down PYPL stock. With companies like Skrill, Payoneer (NASDAQ:PAYO), Block (NYSE:SQ), and Stripe providing payment solutions that compete with PayPal, the financial services arena will remain competitive.
This year will also be challenging for PayPal because people are returning to their normal routines. It is reflected in the muted forecast for the fiscal year. PayPal is a good prospect due to its attractive valuation and excellent operating model.
PYPY Is Actively Looking for New Ways to Grow
PayPal’s goal is to make connecting, transacting, and growing easier for people and businesses. The company’s strategy is to create a new revenue stream through AI-powered services tailored to each customer.
PayPal is actively looking for new ways to grow by using AI to provide personalized services that meet the needs of its customers.
In addition, the company’s two growth segments, Venmo and Braintree, will continue to do well. PayPal explains that Venmo continued its impressive growth and is expected to grow at least 50% for the full year of 2022. Talking about the future, Dan Schulman (PayPal CEO) explained further,
“Eventually you’re going to see Venmo have a lot of the capabilities that the PayPal super has because that consumer base that loves Venmo wants to live more and more of their financial life on the app.”
PayPal has been steadily expanding its use of Braintree, and it’s now one of the services they provide. It’s important to note because this means there are many other growth areas, including customer service, integration, merchant services, and so on, that the company can look to exploit moving forward.
Why Is PYPL Stock Down?
Consumers are now less willing to spend or shop online heavily. They are returning to their normal routines. This has affected PayPal’s income and profits. In addition, inflation has been a persistent issue in the global economy of late.
This year will be tough for PayPal as it struggles with changing market trends. PayPal has faced a lot of challenges in recent quarters: Now that its former parent company, eBay (NASDAQ:EBAY), has moved to a different payment system, more consumers make a return to “brick-and-mortar” stores. Laying off risk and operations support staff isn’t easy. But it is necessary given the supply-chain disruptions they are contending with.
PayPal cut its revenue forecast to reflect market changes since its initial projection. They now believe they will have revenue growth of just 13% this year, while their previous estimate was 17%. They are also slashing their guidance for total payments volume to 15% -17% from an earlier outlook of 21% to 23%.
It doesn’t help that PayPal is looking to pivot towards a new strategy during this time. It focuses less on acquiring new clients. Instead, the onus is on maximizing revenues from the existing clientele by offering more services and keeping them on the app for all financial services needs.
The Good Outweighs the Bad
PayPal is a global e-commerce business that allows users to send and receive money online. They have over 361 million active accounts worldwide and have processed billions of dollars in transactions yearly.
However, digital payments are revolutionizing the world of commerce. The emergence of digital payments has paved the way for innovations in the industry. PayPal is firmly part of this trend. On balance, the issues it is facing are short-term headwinds. Do not let them deter you from investing in PYPL stock.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.