PayPal’s (NASDAQ:PYPL) investors have had a less-than-stellar year in 2023. Will 2024 be a turnaround year? Anything’s possible, but I don’t consider it a compelling value right now.
If the bullish argument for PayPal stock is based on the company’s value proposition, that argument will quickly fall apart. As Bank of America analyst Jason Kupferberg points out, 2024 will be a transitional year for PayPal as the company has a new CEO and a new chief financial officer (CFO). This suggests uncertainty, and investors should wait until there’s a clear, convincing case to invest in PayPal.
PYPL Stock: Assumptions vs. Facts
PYPL stock declined for much of the year and will almost certainly underperform the major stock market indices. Does this mean PayPal offers a good value now? Making assumptions is a dangerous practice, so let’s dig deeper and dig up the facts.
It’s difficult to conclude that a company offers a strong value if its sales growth is weak. In PayPal’s case, the company’s third-quarter 2023 revenue increased 8% year over year, which isn’t very impressive.
PayPal’s net income totaled 93 cents per share, compared to $1.15 per share in the year-earlier quarter. This isn’t disastrous, but it’s another blow to the bullish case for PayPal stock.
In addition, BMO Capital Markets analyst Rufus Hone observed that the decline in PayPal stock this year wasn’t just an accident. “PYPL shares have been pressured due to investor concerns around market share losses, an aggressive pricing environment in unbranded processing, and slower e-commerce growth,” Hone explained.
PayPal’s Situation Goes From Bad to Worse
Along with fierce competition in the payments processing market and an executive-level transition, what could make 2024 even more difficult for PayPal? The answer is, losing an important tie-in with Amazon (NASDAQ:AMZN).
Specifically, Amazon will stop offering PayPal’s Venmo payment processing method during checkout on its e-commerce platform. This change will take effect on Jan. 10, 2024.
Could this change prompt a crisis of confidence for PayPal during this transitional time? It’s certainly a major issue with big-picture implications for PayPal. In the words of Evercore ISI analyst David Togut, Amazon dropping the Venmo checkout option “creates concern around PayPal’s ability to monetize on these platforms.”
Venmo tried to reassure the public, telling Barron’s, “We have a strong relationship with Amazon and look forward to continuing to build on it.” For cautious investors, though, Amazon’s actions should speak louder than PayPal/Venmo’s words.
PYPL Stock: 2024 Will Be a Year of Challenges
PayPal is profitable, but its declining income per share and revenue growth are red flags. Making matters worse, 2023 capped off a rough year for PayPal stock with the news that Amazon will stop offering the Venmo payment option at checkout.
Going into the new year, expect PayPal to face challenges and don’t assume that the company’s issues will resolve quickly.
On the date of publication, David Moadel 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.
