PayPal’s (PYPL -5.21%) stock closed at an all-time high of $308.53 on July 23, 2021. The pandemic was generating strong tailwinds for its business as more people shopped online and used digital payments, and that growth spurt offset its loss of its former parent company eBay (EBAY -5.04%) to its Dutch competitor Adyen (ADYE.Y -0.72%) -- which occurred in a five-year transition from 2018 to 2023.
But by Oct. 27, 2023, PayPal’s stock had sunk to a six-year low of $50.39. The bulls fled as that pandemic tailwinds dissipated, inflation curbed consumer spending, and it faced tougher competition across the fragmented digital payments market.
Image source: PayPal.
However, PayPal’s stock now trades at about $83. It bounced back as its growth stabilized, it expanded its ecosystem, and it focused on growing its profits. So will this divisive fintech stock head even higher over the next 12 months?
What happened over the past few years?
Back in 2021, PayPal predicted it could reach 750 million active accounts by 2025. But it eventually withdrew that forecast and ended the third quarter of 2024 with just 432 million active accounts. That represented just 1% growth from a year ago, but it was finally gaining active accounts again after shedding 2% of its accounts in 2023.
PayPal’s total payment volume (TPV) continued to grow at a steady rate even as it struggled to gain new users. It achieved that by rolling out more features for its namesake app, expanding its Venmo peer-to-peer payments app, and tethering more businesses to its Braintree backend payments platform.
|
Metric |
2020 |
2021 |
2022 |
2023 |
9M 2024 |
|---|---|---|---|---|---|
|
Active Accounts Growth |
24% |
13% |
2% |
(2%) |
1% |
|
TPV Growth |
31% |
33% |
9% |
13% |
11% |
|
Revenue Growth |
21% |
18% |
8% |
8% |
8% |
Data source: PayPal.
As a result, PayPal’s revenue growth stabilized over the past three years. However, its annual transaction take rate (the percentage of each transaction it keeps as revenue) has still declined every year since its spin-off from eBay in 2015.
That contraction was caused by its growing dependence on Venmo and Braintree, which both generate lower transaction take rates than its namesake app. To offset that pressure, PayPal aggressively reined in its spending and bought back more shares.
What will happen to PayPal over the next year?
For 2024, PayPal expects its EPS to grow 2%-3% on a generally accepted accounting principles (GAAP) basis and by the “high teens” on a non-GAAP basis which excludes its stock-based compensation and other one-time expenses.
Analysts expect its revenue and GAAP EPS to grow 6% and 4%, respectively, in 2024. For 2025, they expect its revenue and GAAP EPS to rise 6% and 17%, respectively, as the macro environment improves and it expands its ecosystem. That stable growth indicates it can keep growing over the long term without eBay’s support.
Under Alex Chriss, who took the helm as PayPal’s CEO in 2023, it’s been steadily expanding its new services -- including its FastLane checkout service, its Smart Receipts tool, its Cash Pass rewards program, its buy now, pay later (BNPL) platform, and its own PayPal USD stablecoin for cross-border transactions -- to lock in its users. Chriss also remains committed to boosting PayPal’s free cash flow (FCF), which is forecast to grow 43% to $6 billion in 2024, to support its ongoing buybacks.
That outlook seems stable, and PayPal’s stock still looks cheap at 18 times forward earnings. For 2026, analysts expect its revenue and GAAP EPS to grow another 7% and 13%, respectively. If it matches those expectations and maintains the same forward valuations, its stock could potentially rise 14% to $95 by the end of 2025.
That gain might be disappointing for investors who had expected PayPal’s stock to soar back to its pandemic-era peak. But if you’re looking for a stable play on the growing digital payments market which is less volatile than other higher-growth fintech stocks, PayPal might just be worth nibbling on at these discount valuations.
