PayPal (NASDAQ:PYPL) boasts impressive U.S. adult usage over the past five years. Currently, more than 70% of the adult American population uses this platform, highlighting PYPL stock’s strong brand recognition and user loyalty. Indeed, PYPL stock has been solidified as a preferred payment method, providing a robust foundation for future growth strategies in the U.S. payment ecosystem.
PayPal did face challenges this past year, witnessing a 17% stock value decline. Despite past struggles, optimism arises from potential economic improvements. In 2020, loose monetary policy benefited the company, and although replicating that success is challenging, upward movement is plausible.
As consumer spending rebounds, PayPal stands to perform well, benefiting from its dual role serving consumers and merchants. With an expectation of 6-7% revenue growth this quarter, PayPal is strategically investing in initiatives to attract users to the platform.
So, what should investors look forward to with PayPal?
Strengthened Financials
In his first earnings call as PayPal’s CEO, Alex Chriss detailed initiatives for online and in-person ubiquity, emphasizing leveraging data, scale, and brand with AI. Third-quarter highlights include double-digit year-over-year growth in transactions per active account and 25% of total payment volumes from P2P transactions.
PYPL stock reported a 13% year-over-year growth in total payments volume to $388 billion, with transactions per active account increasing by 13% to 56.6. P2P total payments volume reached $97 billion, and Venmo TPV rose 7% to $58 billion. The company closed the third quarter with 428 million active accounts, reflecting a slight decline attributed to minimal engagement churn.
Cross-border trade TPV accounted for 12% of the total, growing 4% on an FX-neutral basis, primarily linked to eCommerce spending on goods. Chriss noted over 70% of U.S. adult usage in the past five years and highlighted the broad adoption of core products and services, including the recent launch of Venmo Team accounts.
New President of Global Markets
On December 6, PayPal Holdings, Inc. appointed Suzan Kereere as President, Global Markets, effective January 1, 2024. With a rich background in leading global payments and technology platforms, she will oversee PayPal’s worldwide businesses, focusing on seamless execution and profitable growth. This includes managing global sales and distribution to reinforce PayPal’s role as a prominent digital payment partner globally.
Alex Chriss, PayPal’s President and CEO, praised Suzan’s 30-year career, highlighting her success in driving transformation, sales, and customer initiatives while fostering inclusivity and growth.
Kereere, previously leading Global Business Solutions at Fiserv, has now joined PayPal. As Fiserv’s Chief Growth Officer, she enhanced customer value and accelerated enterprise growth. With executive roles at Visa and American Express, she brings extensive experience in global merchant sales and acquisition. Investors of PayPal look forward to what Kereere can bring on the table for the company, now that it also faces operational challenges.
Stuck But Still Cheap
PYPL stock has remained within a stable trading range for the past six months, currently priced at $61.78, close to its June 29 level of $65.86. With a low forward price-earnings ratio of 11 times, based on the forecasted 2024 earnings per share of $5.60, PYPL stock presents an inexpensive opportunity, especially for income play through shorting out-of-the-money put options.
PayPal’s stock, undervalued at its current price, exhibits potential for substantial growth. With robust free cash flow ($1.1 billion in the latest quarter, forming 14.9% of $7.4 billion net revenue), future FCF could approach $5 billion. Analysts project a 2024 revenue of $32.17 billion, suggesting a significant FCF, possibly utilized for dividends or stock buybacks.
This undervaluation makes PYPL stock appealing to short sellers of near-term expiry out-of-the-money put options.
On the date of publication, Chris MacDonald 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.
