Despite beating expectations with strong fourth-quarter 2023 results, PayPal (NASDAQ:PYPL) stock plummeted 11% the next day due to cautious revenue and earnings guidance. Such a decline may certainly be worrisome for existing investors. But the question now remains whether this dip presents a potential buying opportunity. This is central to my PYPL stock outlook.
After all, PayPal sustained an impressive growth rate with a 13% increase in total payment volume (TPV) to over $1.5 trillion in 2023. Handling 25 billion transactions, its platform showcased resilience, with transactions per active account rising 14%. Notably, Braintree, its unbranded payment processing service, surged with 30% TPV growth, now comprising 35% of the company’s total volume.
Let’s dive into why PayPal stock may indeed be an intriguing bet in the fintech space, despite shaky recent fundamentals.
2024 Outlook: Not So Impressive
Investors await PayPal’s turnaround as the company’s management team strategizes for growth. Though progress has been slower than anticipated, total volumes increased 15% to $410 million, with transactions up 13%. Despite a 2% decline in active accounts, payment transactions per account surged 14%.
Revenue climbed 9% to $8 billion, surpassing estimates, while adjusted earnings surged 19% to $1.48 per share, beating forecasts. To control costs, PayPal cut 9% of its workforce and plans strategic investments for growth, acknowledging a challenging turnaround ahead. This is central to my PYPL stock outlook.
That said, the company’s weaker-than-expected growth forecast should have some investors concerned. Right now, I think the company’s long-term growth trajectory remains intact, but the long-term is made up of individual quarters. Thus, I think investors will need to see some improvement in the coming quarters, or this stock could potentially decline further.
Stock Downgrades
Following the departure of a bullish analyst, PayPal’s stock plummeted the next day. Daiwa Capital Markets downgraded the stock to neutral, citing concerns about growth prospects. The analyst highlighted the need for improved transaction margins and the impact of increased investments.
While PayPal’s recent earnings exceeded expectations, its 2024 guidance fell short, contributing to a mixed response from Wall Street. Despite efforts to revamp its services, ongoing competition and investor skepticism persist.
The Positive Angle
Investors may worry about PayPal’s stagnant user base, which declined 2% to 426 million by December 31, 2023, contrasting sharply with the pandemic-era surge of 121 million new accounts. Despite this key factor, PayPal’s vast scale, linking millions of consumers and merchants, creates strong network effects, forming its competitive advantage.
With that strategy, PayPal will have a more appealing take for both retailers and consumers, resulting to more members in the near future. This shows how resilient PayPal can be against its rivals in the payments setor.
Last month PayPal announced that it will release six AI-integrated innovations to enhance better user experience and drive more growth to the platform. These initiatives prioritize improving Branded Checkouts, Payment Service Provider (PSP) services, and Braintree by 2024. Among the innovations, a redesigned checkout process simplifies transactions with passkeys and biometric recognition. FastLane enables one-tap guest checkout, cutting down time by up to 40%.
Smart receipts offer purchase tracking and personalized suggestions. PayPal also introduced the Advanced Offers Platform, revamped its app, and upgraded Venmo’s business profiles.
It’s Best to Wait
Considering PayPal’s undervalued status, with a low price-earnings and price-sales multiple relative to its historical average, it’s a tempting buy. Despite fierce competition affecting margins, PayPal’s trusted platform among merchants and consumers offers stability.
Ultimately, I think this is a stock longer-term investors may want to consider dollar-cost averaging into, since there could be more near- to medium-term downside. This concludes my PYPL stock outlook.
On the date of publication, Chris MacDonald 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.
