From its peak price of $308 on July 23, 2021, to date, PayPal stock has lost nearly 78%. Since the company is by no means 80% less profitable than in 2021, the price clearly reflects a snowball effect, prompting investors to either sell the stock or stay away from it.
PayPal established itself as a giant in the world of technology, reaching an impressive valuation of $362 billion. However, its focus shifted over time towards expanding its range of services through acquisitions.
This change in strategy resulted in the development of a brand ecosystem that includes Venmo for person-to-person money transfers and Honey for improving shopping experiences. Despite these expansions, PayPal’s operational efficiency has taken a hit, leading to an inefficient structure. Since separating from eBay, its gross profit margins have decreased, while sales, operations, and administration expenses have increased significantly. Additionally, the financial technology sector has become more competitive.
PayPal’s dominance in areas like peer-to-peer transactions and the growing “buy now, pay later” market is now being challenged by competitors such as Block’s CashApp and specialized BNPL providers like Affirm, Klarna, and Afterpay.
What went wrong?
During CoVid, while numerous businesses encountered difficulties, companies specializing in digital payments, such as PayPal, witnessed substantial growth due to a surge in online shopping activity.
Nevertheless, as the world started reopening post-pandemic, the upward momentum of PayPal’s stock began to diminish. Within a year, the company experienced a reversal of its pandemic-induced gains following a string of subpar performances.
At the peak of the crisis period, online retail accounted for 16.4% of total sales in the United States; however, this percentage has since declined and remains below 15% in subsequent years. While PayPal saw growth in payment volumes, its stock performance has slowed down due to tough competition in the online payment industry.
Investors started worrying about PayPal leadership. Thus, on February 9, 2023, PayPal published a press release announcing that President and CEO Dan Schulman would step down from his role by December 2023. Alex Chriss would replace him, while Schulman assured the Board that he would work closely with them to ensure a smooth change in leadership and would continue serving on the Board of Directors. “I’m proud of what we have accomplished at PayPal and of the incredibly talented and committed people I work with every day,” said Schulman.
Did PayPal stock lose the war or just a single battle?
The investment world is split almost equally between those who believe recovery is possible and those who don’t. Bulls feel strongly about the change in the CEO and are betting on Alex Chriss.
Under the guidance of Alex Chriss, who serves as both President and CEO of PayPal, the company is undergoing a transformation focused on driving growth and improving operational efficiency. Chriss has implemented strategies to concentrate on opportunities by cutting costs and directing resources toward areas with the greatest potential for expansion. A key element of his plan involves enhancing efficiency and leveraging customer data to personalize services to meet user needs effectively, particularly by expanding services for small businesses and improving service offerings for major clients, including those utilizing Braintree. Chriss made a significant decision by appointing Jamie Miller as the chief financial officer to lead PayPal’s updated strategy and cost management practices. Despite facing challenges, Chriss remains committed to reshaping PayPal into an influential and innovative organization during his leadership tenure.
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According to the data above, the company’s financial status is in good shape, receiving recommendations for its debt-to-equity ratio, price-to-earnings ratio, price-to-book ratio, DCF, and ROE. The current target price is $66.67, with a consensus target of $126.18, ranging from $62.00 to $290.00. Social media sentiment on January 21, 2024, indicates a Twitter sentiment and a positive Stocktwits sentiment score of 0.6722. Analyst opinions vary; Michael Ng from Goldman Sachs and Dan Dolev from Mizuho Securities recommend buying, while Joseph Vafi at Loop Capital Markets also suggests a buy. However, Kevin Barker from Piper Sandler advises selling.
To Summarize
PayPal’s stock has taken a hit since its peak in 2021, losing 78% of its value. This decline has overshadowed the company’s foundation. The drop can be attributed to changes in strategy towards diversifying services and operational challenges post-acquisitions like Venmo and Honey, as well as increased competition in the fintech industry. The shift to pandemic normalcy has also affected PayPal’s growth, with digital payments slowing down and the company facing difficulties in maintaining its position amidst changing consumer trends and a competitive environment.
The recent news of CEO Dan Schulman stepping down and Alex Chriss taking over signals a pivotal moment for PayPal. Chriss is expected to lead the company into a phase focusing on improving efficiency, driving growth strategically, and using data to enhance services. Despite uncertainties and doubts from the market, there are positive feelings about PayPal’s future, with some investors optimistic about its recovery under new leadership. This change in leadership and strategic direction indicates that PayPal’s current challenges may just be part of a battle rather than a complete defeat in the fintech arena.
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