Leading fintech stock Paypal (NASDAQ:PYPL), like several other growth stocks, has declined significantly this year due to bearish sentiment in the broader market amid rising interest rates. Moreover, investors are concerned that sky-high inflation and a potential recession could slow down consumer spending, impacting Paypal’s growth over the near term. However, most Wall Street analysts are bullish on Paypal stock based on the growing adoption of digital payments and the rise in e-commerce penetration over the long term.
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Paypal shares fell 6.3% on October 10 due to heavy criticism of the company’s policy change that would impose a $2,500 charge on users for “misinformation.” However, the company rolled back its policy update to exclude the misinformation part and clarified that it would not be implementing any such fine. Including yesterday’s decline, PYPL stock has plunged 55.2% so far this year.
Robust Growth Prospects
Paypal’s growth rate has moderated over recent quarters, with e-commerce sales slowing down following the reopening of the economy. That said, the company’s Q2 performance topped analysts’ expectations.
Total Payment Volume (TPV) increased 9% year-over-year to $339.8 billion in the second quarter. The TPV processed by Venmo, Paypal’s peer-to-peer payment platform, increased by 6% to $61.4 billion. The company ended the quarter with 429 million active accounts, reflecting an increase of 6%. Overall, Paypal generated operating cash flow of $1.5 billion in Q2, up 12% year-over-year.
Looking ahead, Paypal is focused on strengthening its namesake and Venmo digital wallets, the core Checkout business, its Braintree payment platform, and expanding in growth areas like buy now, pay later. The company is also cutting down on expenses amid a tough business environment. Paypal expects its productivity initiatives to generate $900 million in cost savings in 2022 and at least $1.3 billion in 2023.
What is the Target Price for Paypal Stock?
Recently, Canaccord Genuity analyst Joseph Vafi reiterated a Buy rating and a price target of $160 on Paypal stock, highlighting a potential positive catalyst with Pay with Venmo expected to be launched on Amazon (AMZN) in the fourth quarter.
Vafi stated, “With nearly 40% eCommerce market share in the US, Amazon remains the clear untapped greenfield for PayPal domestically.” Based on his analysis, Vafi estimates that the Venmo launch on Amazon could generate incremental growth of 0.3% to 2.7% in revenue and 0.9% to 6.7% in EPS, respectively, on a full run rate, annualized basis.
Overall, consensus among analysts is a Strong Buy based on 24 Buys versus seven Holds. The average Paypal stock price target of $120.82 implies nearly 43% upside potential from current levels.
Conclusion – Paypal is a Strong Fintech Play for the Long Haul
Rising interest rates and a potential recession might continue to impact Paypal’s near-term performance. That said, despite increasing competition in the fintech space, Paypal is well positioned to capture further market share driven by its extensive customer base, innovative solutions, and the rapid adoption of digital payments.
Moreover, activist investor Elliott Management’s interest in Paypal would help the company focus on improving its profitability.
