PayPal stock price could enter savage mode soon

PayPal (PYPL) stock price has done well this year, as we predicted a few months ago. It soared to $78.35 this week, its highest level since February 2023, and by over 55% from its lowest level in 2023.

PayPal’s turnaround is underway

PayPal, one of the biggest beneficiaries of the Covid-19 pandemic, is implementing a turnaround after its business slowed substantially. 

Its annual results show that its business has slowed significantly in the past few years. Its 2023 revenue rose to $29.7 billion from the previous year’s $27.5 billion. In the past, PayPal was used to having double-digit growth.

The company is also losing active customers in its ecosystem. The most recent financial results showed that its active users fell by 0.4% to 429 million. 

This performance is happening because competition in its key business has risen. Its wallet business is facing substantial competition from the likes of Amazon, Google, and Apple. 

Its Venmo business is seeing more competition from Cash App, while its unbranded business is seeing strong competition from firms like Adyen, Stripe, Affirm, and AfterPay. 

The most recent financial results show that its net revenue rose by 8% in the second quarter to $7.9 billion. 

On the positive side, the company’s cash control help it increase its operating income rise by 13% to $1.3 billion. Also, the management continued to grow its operating margin by 126 basis points to 16.8%.

PayPal also boosted its forward guidance for the third quarter. It expects that its revenue will grow by mid-single-digit while its EPS growth will be high single-digit. Analysts expect its business will generate over $7.8 billion revenue this quarter and over $31.9 billion in the full year. 

Investors embrace the new normal

PayPal’s investors have now embraced the company’s new normal. Unlike in the past when PayPal was all about growth, it has now become a value stock seeing just single-digit growth metrics. 

PayPal has become a classic value stock. It has over 429 million users, a good balance sheet with over $18.8 billion in cash and short-term investments against $12 billion in debt. 

It is also fairly valued. According to Yahoo Finance, PayPal has a forward price-to-earnings ratio of 16, lower than the S&P 500 average of 21. The figure is also much lower than other fintech companies like Visa, Mastercard, and Block.

PayPal has also been rewarding shareholders, primarily through share repurchases. It spent $1.5 billion in buybacks in the last quarter and $5 billion in the trailing twelve months. As a result, outstanding shares have fallen from over 1.172 billion in 2022 to 1.07 billion, and the trend will continue. These buybacks have helped to boost the company’s earnings per share.

Meanwhile, analysts are relatively bullish on the company. 32 of the 44 analysts tracking PayPal have a bullish outlook, while 12 have a hold rating. The average stock estimate is $81, a few points above the current $78. 

PayPal stock has strong technicals

Meanwhile, PayPal has strong technicals, meaning that it has more upside in the coming months. 

On the daily chart, it formed a golden cross pattern on August 20th as the 200-day and 50-day moving averages crossed each other. The last time PayPal formed that pattern was in 2020, when it surged by almost 200% to its all-time high of over $300. If history repeats itself, it means that the stock may jump to over $200.

PayPal has also jumped above the key resistance point at $70.65, its highest point in April this year, meaning that bulls are in control.

The Average Directional Index (ADX) has risen to 34, meaning that the uptrend is strong. Therefore, the path of the least resistance for the stock is bullish, with the next point to watch being at $100, which is about 28% above the current level.

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