It hasn’t been easy to be a PayPal Holdings(NASDAQ: PYPL) shareholder during the past few years. The fintech giant had a distinct advantage over rivals going into the pandemic, but since then it has been searching for a new way forward after growth slowed. It’s taking a long time, and investors are losing patience. After some up and down periods, the stock is trading now at roughly the same level it was three years ago, which means none of the actions it has taken have delivered results or impressed the market enough to bring the shares back to life.
After the lethargic performance, PayPal stock is trading at a cheap valuation today. Is this an incredible opportunity to buy on the dip and get set up for life?
With 436 million active customers worldwide, PayPal is the leader in digital payments.
That gives it a huge opportunity to expand as the share of transactions happening online keeps rising. E-commerce is still growing as a percentage of retail sales, and PayPal is responsible for a percentage of overall payment volume online. Each percentage point increase in digital payment volume amounts to hundreds of billions of dollars, providing organic growth opportunities for PayPal. According to Statista, global digital payments transaction volume is expected to surpass $20 trillion this year and grow at a compound annual rate of 13.6% through 2030.
Image source: Getty Images.
PayPal has lagged during the past few years as younger and more agile companies have released improved payments features that provide better user experiences than PayPal’s legacy interface. PayPal responded by hiring a new chief executive officer, Alex Chriss, to fine-tune its strategy and get back in the game. Since he came on board in 2023, PayPal has released many new features to compete, such as one-click checkout and express checkout. The new interface is now available for more than 45% of transactions. Management’s new strategy involves a pivot from being a payments company to being a commerce company — one that provides a more holistic offering for merchants and shoppers, and connects all of its parts for a unified growth model. For example, its Venmo digital payments service is very popular among its users, and PayPal has issued a Venmo debit card to activate that platform for easier use when shopping. The number of active Venmo debit card users increased by 40% year over year in the first quarter.
There were many highlights in PayPal’s first quarter report that indicate it’s still breathing, but its turnaround story is far from over. Revenue inched up by 2% year over year (on a currency-neutral basis), and its adjusted non-GAAP (generally accepted accounting principles) earnings per share (EPS) rose 23%.
PayPal is comprised of many parts, and one area where it may have made some missteps is in its unbranded checkout business. Because this is a wholesale business of sorts, where it provides payments infrastructure for client companies under their own brand names instead of PayPal’s, it has narrower margins than PayPal’s branded checkout business. Because this business has grown much faster than PayPal’s branded checkout, it has brought down the total company gross margin. Chriss has been working to change that by repricing the services it offers in that unbranded checkout business, and that is showing up in its transaction margin dollars, which increased 7% year over year in the first quarter.
Total active accounts increased by 2% (9 million) year over year to 436 million, and monthly active accounts were also up 2% to 224 million. That’s a huge win, especially because before Chriss came on board, those numbers were declining. The new checkout interface is clearly resonating with PayPal’s customer base. Total payment volume increased 7% over last year, with branded checkout increasing from 30% of the total to 32%.
PayPal has been making the right moves, and it’s heading in the right direction. However, it’s not the growth stock it once was, and investing in it today would still be a bet on a turnaround that might only be starting — or never bear fruit. That requires some risk tolerance.
Currently, PayPal stock trades at cheap valuations that are well below its three-year averages.
If you have an appetite for risk and believe its turnaround strategy will work, investing enough money today could provide you with some sizeable gains down the line. However, the stock is priced low right now because the market isn’t seeing that potential.
PayPal is a mature company even at its best, and if it stabilizes, it could present as a value stock. But if investors are looking for stocks that can deliver the sorts of returns that set them up for life, they should look elsewhere.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short June 2025 $77.50 calls on PayPal. The Motley Fool has a disclosure policy.
