PayPal (PYPL 0.65%) has taken it on the chin over the past several years. The digital payment company has struggled to maintain the rapid growth it saw during the pandemic and has faced scrutiny for its declining margins.
However, the past year has been much better for the fintech. It has undergone a transition year to improve its offerings and margins. Today, PayPal trades at a reasonable valuation as the company looks to restart the growth that made it a fintech darling a few years ago. Here's why it could be a solid buy for investors today.
PayPal has taken investors on a roller coaster
Several years ago, the company enjoyed rapid growth as pandemic-era measures pushed shopping online and made payments more digital. It added customers at a staggering pace, and its total transaction volume exploded to over $1 trillion.
However, the company had a tough go of it starting in late 2021 when its rosy expectations seemed less likely to become a reality. The company shifted from adding customers and focused on getting more from those customers.
It also struggled with declining transaction margins due to a falling take rate (the revenue that it keeps on every transaction it processes). Part of this was due to the rapid growth in Braintree, its unbranded checkout option. While this has been one of the fastest-growing areas of the company, it is also a smaller-margin business that was dragging down analysts' growth expectations.
CEO Alex Chriss has breathed life into the fintech
PayPal stock had declined from its peak of $309 to $50 by October 2023, and former CEO Dan Schulman announced he would step down from the role he had held since PayPal split from eBay in 2015. Enter Alex Chriss.
In September 2023, Chriss brought his talents over from Intuit, where he was the executive vice president and general manager for its small-business and self-employed group.
Image source: Getty Images.
Chriss' first task was to reignite growth by revamping PayPal's checkout options and better serving small and medium-size businesses (SMBs). One of the initiatives was to improve the checkout experience and enable one-click checkouts, a feature called Fastlane. According to the company, Fastlane reduced checkout time by 32% and attracted big-name customers, including Salesforce, Adobe, and BigCommerce, an e-commerce platform that provides software as a service to retailers.
The company has also become an additional payment processor for Shopify Payments in the U.S., streamlining the process for SMB owners to manage orders, payouts, reporting, and charge-back flows. It has partnered with Amazon to bring its checkout option to businesses using Buy with Prime. The company will expand on this offering in 2025, an area where Chriss says "there is a significant opportunity."
Digital advertising could drive added growth
Another area that could help the company grow is its expansion into digital advertising. As one of the largest payment companies in the U.S., PayPal has a trove of consumer spending data.
It aims to use this data to connect customers with merchants and convert more sales. It plans to use artificial intelligence (AI) to create targeted discounts and personalized recommendations based on customers' shopping habits.
Last year, the fintech hired Mark Grether as senior vice president and general manager for PayPal Ads. Before joining the company, Grether helped turn Uber Advertising into a $1 billion business. The opportunity could be a considerable boost to PayPal's business, with the digital marketing space projected to grow nearly 15% annually by 2030.
A solid stock at a reasonable price
PayPal is taking essential steps to restart growth and boost its margins. The stock has gained 40% over the last year, showing some optimism around its initiatives under Chriss.
PYPL price to free cash flow; data by YCharts.
Even with the recent run-up, the stock is priced at 18.3 times this year's projected earnings and 13.4 times free cash flow, which is on the low end of its valuation since being spun off of eBay in 2015.
At this price, PayPal looks like an excellent value stock to buy today and hold for several years as it expands on key partnerships and rolls out its digital advertising business.
