Shares of PayPal Holdings (NASDAQ: PYPL) have declined about 62% year-to-date amid a broader market sell-off due to macro headwinds. The stock has also been impacted by the company’s downward revisions to its full-year guidance, due to a slowdown in e-commerce transactions following the reopening of physical retail stores. Additionally, eBay’s (EBAY) migration to its own payments system and the impact of soaring inflation on consumer spending have attributed to excess headwinds.
Focus on Driving Future Growth
PayPal lowered its full-year guidance in April and now expects Total Payment Volume (TPV) to grow in the range of 13% to 15%, crossing $1.4 trillion. It forecast 2022 revenue growth of 11% to 13% (on a spot basis).
PayPal is looking beyond near-term noise and is focused on attracting high-value accounts while enhancing engagement across its existing customer base. In the first quarter, active accounts grew 9% to 429 million, and the company added 2.4 million net new active accounts. Also, Transactions per Active Account increased 11% to 47 in the first quarter.
PayPal continues to add new features to its platform to drive further growth. It recently announced PayPal Pay Monthly, a new “Buy Now, Pay Later” offering, issued by WebBank, which gives U.S. consumers the choice to make flexible monthly payments with no late fees.
Also, PayPal continues to eye the crypto market for further growth and recently announced that its U.S. users can now transfer cryptocurrencies between PayPal and other wallets and exchanges.
Wall Street’s Take
As per UBS (UBS) analyst Rayna Kumar’s analysis, Core PayPal, Braintree, and P2P (peer-to-peer) represent 52%, 17%, and 28% of PayPal’s TPV, respectively, while eBay accounts for the remaining 3%.
After examining the growth rate potential for each of these components for the 2022 to 2026 period, Kumar believes that PayPal can achieve a 16.6% revenue CAGR, assuming 17.7% TPV growth and 18.2% OVAS (Other Value Added Services) revenue gains, partially offset by a nearly 2% headwind from take rate pressure.
Kumar reiterated a Buy rating and a price target of $143 on PayPal stock stating, “With PayPal trading at just 14x our 2023E EPS (9% above consensus), the market does not appear to price-in such growth, providing a solid entry point for the shares, we believe.”
Overall, consensus among analysts is a Strong Buy based on 26 Buys, five Holds, and one Sell. The average PayPal price target of $125.45 suggests 73.35% upside potential from current levels.
Conclusion
PayPal could continue to be under pressure over the short term due to the impact of macro challenges on consumer spending and a slowdown in online transactions after witnessing a spike earlier in the pandemic.
That said, most of the Wall Street analysts currently covering the stock continue to be bullish on the company’s prospects in the fintech space and expect the stock to rebound from current levels.
