PayPal (NASDAQ:PYPL) stock has been in the doghouse for a long time, but the stock looks compelling based on its inexpensive valuation and the new strategic initiatives it unveiled at its First Look event. I’m bullish on this beaten-down fintech stock based on management’s new growth initiatives and its undemanding valuation.
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New Strategies Unveiled: Life in the “Fastlane”
New CEO Alex Chriss, who left Intuit (NASDAQ:INTU) to take over PayPal in September, had spoken of PayPal’s plans to “shock the world.” The company announced that it would unveil its new plans at a ‘First Look’ event, which took place yesterday.
Perhaps the plans weren’t as revolutionary as some investors and analysts were expecting because the market seemed underwhelmed by the strategic update, as the stock slid 3.7% for the day.
However, despite the market’s apparent lack of enthusiasm in the immediate term, the new initiatives that the company unveiled look well-suited to set PayPal up for further long-term growth. We’ll discuss some of the most intriguing highlights below.
The new Fastlane by PayPal initiative looks particularly promising. Finding and typing in a credit card number or remembering a username and password can add friction to the online checkout process. E-commerce vendors know all too well that any hiccup or disruption in the checkout process can drastically reduce their conversion rates, and Chriss stated that online shoppers end up not completing a purchase about 50% of the time.
Fastlane seeks to drastically reduce this friction and improve this experience. Users can save their information with Fastlane and “check out in as little as one tap, no username or password to a member. No personal info to update. No need to share a credit card with businesses all over the web.”
This would be a big deal for both customers and businesses alike — consumers will enjoy an easier and faster checkout process, while merchants should benefit from higher conversion rates, translating into higher sales. Fastlane is in a pilot phase right now, and if it takes off, it seems like a win-win for customers, merchants, and PayPal itself.
If Fastlane is successful, more customers and vendors will be eager to use PayPal. PayPal is currently testing the program with e-commerce platform Big Commerce (NASDAQ:BIGC) and says that they are seeing conversion rates as high as 70%.
PayPal is also rolling out Smart Receipts. These Smart Receipts not only allow customers to track their purchases, but they will use AI to suggest products that customers may want to purchase next and to offer personalized cashback offers to each customer. Emails with PayPal already have a high open rate (around 45%, according to Chriss), so taking advantage of this to make personalized offers and recommendations could be a real catalyst for merchants.
Other initiatives include the Advance Offers Platform, which seeks to personalize the way that customers are served ads online based on their shopping habits, right down to the SKU number. PayPal says that it will leverage its data from over half a trillion dollars worth of merchant transactions worldwide to “customize offers like never before.”
Another initiative, CashPass, will give U.S. customers access to personalized cashback offers from top merchants. Chriss said, “When you see an offer you like, you just tap on it. And when you shop with that business, the deal automatically applies when you check out with PayPal. One tap, it’s that easy.” CashPass will launch in March and will feature companies like Uber (NYSE:UBER), Walmart (NYSE:WMT), and McDonald’s (NYSE:MCD).
These changes stand to make PayPal a more integral part of the online shopping process for both consumers and merchants alike, which will behoove PayPal stock over the long run.
PayPal Stock is Cheap
Unlike some other beaten-down fintech names that have fallen from their peaks, PayPal stock is profitable. And it trades at an undemanding valuation. PayPal trades at just 11 times earnings. This is barely half of the valuation that the broader market trades at. The S&P 500 (SPX) has an average price-to-earnings multiple of 21.5.
It’s also much lower than the valuation that PayPal has typically enjoyed in the past. During the frothy days of 2020, PayPal shares traded at over 100 times earnings. Obviously, this was a bit frothy, but as recently as last January, PayPal traded for nearly 40 times earnings, roughly four times its current multiple.
I’m not saying that PayPal necessarily deserves to get back to 40 times earnings, but this illustrates how cheap the stock is compared to its historical valuation, and there is plenty of room for upside between 10 times earnings and 40 times earnings.
Is PYPL Stock a Buy, According to Analysts?
Turning to Wall Street, PayPal earns a Moderate Buy consensus rating based on 17 Buys, 16 Holds, and zero Sell ratings assigned in the past three months. The average PYPL stock price target of $72.63 implies 19.6% upside potential.
The Takeaway: There are Signs of Life
PayPal stock has fallen a long way from its glory days. But the new CEO’s plans have the potential to send the stock higher. While the unveiling of the plan didn’t take the market by storm yesterday, it should help to set the stock up for more long-term growth. Furthermore, the stock’s undemanding valuation means it could be the right time to invest. PayPal reports earnings on February 10, so there could be volatility leading up to this report, but for long-term investors, PayPal looks like an interesting buy-low bet.
