Paypal (NASDAQ: PYPL) has had it rough. In putting together this PYPL stock forecast, I decided to look at the broader sector. Payment stocks are doing well right now. Consumers are spending, especially in the U.S. People prefer plastic to paper, even for small transactions. Thus, payment processors are trading at a premium to the market.
Visa (NYSE:V) goes for 32 times earnings. Fiserv (NYSE:FI) sells for 29 times earnings. Even Capital One Financial (NYSE:COF), which made its name as a credit card bank, is up over the last year. But Paypal (NASDAQ:PYPL) is lagging. It’s down a lot over the last year. Analysts call PayPal a bargain but they just laid off 9% of the workforce. According to my PYPL stock forecast, this bodes poorly.
Competition’s Impact on the PYPL Stock Forecast
While companies like Fiserv make their money inside the payment process, PayPal lives at the edge. It’s a brand name. Services like Venmo are sold directly to consumers. Braintree sells directly to banks. PayPal itself sells payment systems to online merchants.
It’s here that the Cloud Czars, especially Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG), have set out their stalls. Apple Pay and Google Pay make things easy for consumers. They interact with existing systems through credit cards and don’t threaten the processors (yet). But they do aim to take over the relationship.
On the bank side, it’s Block (NASDAQ:SQ) that is the disrupter. Their simple dongle-based system, combined with the Cash App, continues to gain share among small merchants. Then there’s Amazon.Com (NASDAQ:AMZN), which offers payment services to all its third party merchants.
PayPal Solutions
New PayPal CEO Alex Chriss, formerly with Intuit (NASDAQ:INTU), is aware of all of this. He has a good track record, having led Intuit’s acquisition of Mailchimp.
Chriss said he would “shock the world” with new announcements on Jan. 26. Faster checkouts, smart receipts, and automated offers sound great, but other companies already have them. Wall Street was unimpressed.
Just days later, PayPal announced the layoffs. This followed the previous management’s letting go of 7% of their workers. PayPal will announce earnings today after the market closes, and analysts aren’t expecting much. Earnings of $1.36 per share would only be 9% ahead of last year. Expectations for 2024 are only 10% ahead of the 2023 numbers.
Table Pounders
The pall around PayPal has some analysts pounding the table, predicting a break-out. It’s trading at a discount, the reasoning goes, so just catching up with the pack should bring an 18% gain.
The layoffs should bring more money to the bottom line, others say. PayPal stock could double in five years. Visa has done that over the last five.
Bulls are also teasing PayPal’s AI initiatives, like its Advanced Offers. But most of these are things Amazon and Google have done for years.
Still. It’s a cheap stock, it does have valuable brands like Venmo, and Chriss still has that new car smell about him. PayPal doesn’t have to become the unquestioned industry leader for investors to see a gain, the thinking goes. Just get back into the middle of it again.
The PYPL Stock Forecast
PayPal’s history is one of first-mover advantage.
When payments were new, when international payments were expensive, when Web stores were starting out, PayPal got there first and took the business.
That heritage still exists in the PayPal stablecoin launched last year. The aim is to enable purchases of real goods with cryptocurrency, making PayPal a key feature in online consumer wallets.
When the earnings call comes out, I’ll be listening closely to hear how that’s going, and about the take-up of other innovations announced last month.
The danger is that the Cloud Czars are still coming, and they won’t let up. Being first to market puts a target on your back.
As of this writing, Dana Blankenhorn had LONG positions in GOOGL, AMZN and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
