Challenging Competitors and Consolidating Position
PayPal Holdings is projected to report fourth-quarter earnings of $1.18 per share, based on generally accepted account principles. Analysts, as tracked by FactSet, estimate sales for the period to reach $7.88 billion. Despite being responsible for approximately a quarter of e-commerce transactions, PayPal has been losing ground to rivals such as Apple Pay.
The company, known for its online checkout services and peer-to-peer transfers through apps like Venmo, faces challenges in safeguarding its core checkout business. With competitors like Apple Pay and Google Pay gaining traction, PayPal needs to prove its ability to minimize market share erosion.
CEO’s Strategic Measures
Under the leadership of CEO Alex Chriss, who assumed office in September 2023, PayPal announced plans to lay off 9% of its workforce. This measure aims to “right-size” the company and enhance its overall business performance. Employees received a memo detailing the restructuring efforts at the end of January.
Market Performance and Analyst Assessments
Over the past year, PayPal stock has experienced a decline of approximately 23%, closing just under $64 on Tuesday. However, it has seen a 3.8% increase since the start of 2024. As per FactSet, analysts are divided in their outlook for the stock. Approximately half rate it as a Buy, while the other half have assigned a Neutral rating. The average price target stands at $63.01.
Assessing the Checkout Business Landscape
PayPal faces competition from various options, including Apple Pay and Google Pay, particularly in its core “branded” checkout business. In response, the company also offers a lower-margin unbranded checkout service that is currently experiencing growth.
In conclusion, PayPal’s financial results announcement holds significance for investors, who are eager to witness the company’s ability to combat competitive threats. With a focus on repositioning and streamlining its operations, PayPal aims to solidify its position in the market while adapting to evolving consumer preferences.
PayPal’s Stock: A Topic of Debate
BTIG analysts recently stated in a research note that PayPal is currently one of the most heavily debated stocks on their radar. While they anticipate strong earnings guidance from the company, they also expect a weak revenue forecast. The analysts further express their skepticism, stating that it would be surprising if PayPal manages to attract incremental buyers by presenting a growth narrative.
Innovation and Impression
PayPal’s “Innovations” event in January showcased several initiatives that aimed to impress Wall Street. These included the introduction of “smart receipts” – a feature that employs artificial intelligence to predict a consumer’s preferences – and a speedy checkout process.
Regulatory Advantages
Despite some challenges, regulatory changes seem to be working in PayPal’s favor. Apple recently announced its decision to open up tap-to-pay functionality on its iPhones to competitors in the European Union, in compliance with an E.U. law. This development creates an opportunity for PayPal and other companies to offer tap-to-pay applications on iPhones within select markets.
A Stock Bargain
Investors may be enticed by PayPal’s stock as it currently stands at a relatively inexpensive price compared to historical standards. With a price-to-earnings ratio based on the next 12 months’ estimated earnings of 11, which is half the industry average, and significantly below PayPal’s five-year average of 30.5 times earnings.
To persuade investors that they have untapped potential, PayPal needs to demonstrate that its growth story is far from over.
