PayPal Stock Warning: Avoid This Sinking Ship as Market Share Plummets

  • PayPal’s (PYPL) new CEO is trying to turn the struggling company around. 
  • A new AI-powered ad platform appears dubious at best. 
  • Since peaking in 2021, PayPal’s stock has fallen 80% with no bottom in sight. 
PayPal Stock - PayPal Stock Warning: Avoid This Sinking Ship as Market Share Plummets

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Down 80% from its 2021 peak during the pandemic, PayPal (NASDAQ:PYPL) stock is in long-term decline and not worth risking capital on. The switch to online commerce during the pandemic temporarily boosted PayPal’s stock price, ending a decade long struggle.

Since the previous bull market ended three years ago, PayPal has once again resumed its downward trajectory as it loses market share to competitors. This makes PYPL stock a security to avoid.

Creative Accounting

Some confusion was created when PayPal reported its first-quarter 2024 financial results at the end of April. The company used a new reporting structure that includes stock-based compensation.

Under the new accounting metrics, PayPal reported a 27% increase in its Q1 profit to $1.08 per share. Revenue rose 9% from a year earlier to $7.7 billion. However, because of the new reporting standard, it was not accurate to compare PayPal’s results to Wall Street estimates that were made using the old accounting method.

This led to much head scratching among analysts and investors. However, the bottom line was that PayPal missed Wall Street forecasts of $1.22 per share in earnings and narrowly beat sales estimates of $7.51 billion.

PayPal said its financial results now include stock-based compensation and employer-related payroll taxes to help bolster transparency. Unfortunately, the new reporting structure only seemed to cloud the financial picture.

New CEO, New Strategy

The revised reporting structure comes under PayPal’s new CEO Alex Chriss, who took over leadership of the company last September and is leading a turnaround strategy. Calling 2024 a “transition year, Chriss has placed at the center of the new PayPal an advertising platform that incorporates artificial intelligence.

In a news release, Chriss said that the new ad platform will “drive better advertising spend performance for merchants while delighting consumers with compelling offers.”

PayPal also recently announced new executives who will lead the charge on the new ad platform, namely Mark Grether, former general manager of advertising at Uber Technologies (NYSE:UBER).

Chriss, Grether, and others at PayPal have their work cut out for them with the new ad platform as the company tries to distinguish itself in an increasingly crowded market.

PayPal faces rising competition from a host of similar financial technology and online payment apps that include Stripe, Plaid, Block (NYSE:SQ), and SoFi (NASDAQ:SOFI), not to mention the major credit card companies.

Today, PayPal holds a 38% share of the global payments market, down from about 75% back in 2010. When PayPal first announced its new AI-powered ad platform to a group of analysts in January of this year, its stock fell 4%.

Sell PayPal Stock

PayPal is a long way from its heyday in the early 2000s when it was the leading online payments platform. Founded in 1998 by a group of legendary Silicon Valley entrepreneurs that included Peter Thiel and Elon Musk, PayPal began life as a truly revolutionary company.

However, in the last decade, the company has stagnated, lost market share, and failed to innovate. Now the company is playing catch-up and trying to get its mojo back. That seems unlikely to happen. As the rest of the world has moved on, so too should investors. PayPal stock is not a buy.

On the date of publication, Joel Baglole 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 Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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