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Shares of fintech giant PayPal (
NASDAQ:PYPL
) are down
18% year-to-date and about 39% lower than the 52-week high. Concerns about macro pressures impacting consumer spending and growing rivalry in fintech space, primarily from Apple’s (
NASDAQ:AAPL
) Apple Pay and Alphabet’s (
NASDAQ:GOOGL,
GOOG
) Google Pay, have weighed on investor sentiment for PYPL stock. Nonetheless, several analysts see the pullback in the shares as a good opportunity to build a position in the stock and benefit from its long-term growth potential. Their consensus price target gives PYPL stock a 51% upside.
PayPal Poised to See Better Times Ahead
PayPal enjoyed a strong run during the pandemic, thanks to the spike in e-commerce and accelerated shift to digital payments. However, subdued e-commerce transactions following the reopening of the economy, macro pressures, and intense rivalry have impacted the company’s performance over recent quarters.
In particular, investors are worried about the decline in active accounts and the impact of growth in the company’s lower-margin offerings like Braintree on its profitability. These concerns pulled down the stock despite the company reporting better-than-anticipated
second-quarter earnings and revenue.
On the positive side, PayPal’s Total Payment Volume, a key metric indicating the dollar value of transactions conducted on the company’s payments platform, grew 11% to $376.5 billion and exceeded Wall Street’s expectations. Also, the company’s cost discipline helped drive more than 24% growth in Q2 2023 adjusted EPS, even as
revenue increased by only 7%. The company also issued better-than-anticipated Q3 2023 guidance.
Management is confident about benefiting from higher e-commerce transactions once the macro challenges fade. Moreover, the company expects
artificial intelligence to enhance its products and aims to attract more customers, given that it has significantly accelerated product innovation.
During the Q2 earnings call, management said that it is in the process of launching high-margin, value-added services and expanding internationally.
Is PYPL a Buy, Sell, or Hold?
On Tuesday, PayPal announced that customers can now add their Venmo credit or debit cards to Apple Wallet and make payments with a simple tap of their iPhone or Apple Watch. Following the news,
Morgan Stanley analyst James Faucette commented on Wednesday that this deal would provide “modest relief to investors,” who were concerned about PayPal losing market share to Apple Pay, given the latter’s faster growth and notable usage by younger customers.
The analyst believes that leveraging additional partnerships should be a key strategy that fintech and payment players should pursue to rapidly expand availability and functionality while investing in their core capabilities.
Faucette reiterated a Buy rating on PayPal with a price target of $126.
Including Faucette, 20 out of 29 analysts have a Buy rating on
PayPal stock, while the remaining have a Hold recommendation. The average price target of $88.41 indicates nearly 51% upside potential.
Conclusion
Most analysts believe that the pullback in PayPal stock presents a good opportunity to gain exposure to this dominant fintech player. They expect the company to benefit from growth in e-commerce transactions once macro pressures abate and the continued shift to digital payments.
Disclosure
Apple held talks with DuckDuckGo to replace Alphabet's Google as the default search engine for the private mode on Apple's Safari browser, the Bloomberg News reported on Wednesday, citing people familiar with the discussions.