It’s hard to believe that shares of PayPal (PYPL) would ever have lost over 70% of their value from peak to trough. The leading payments pioneer used to be one of the safer ways to play the space.
These days, everybody wants in on the payments action, with BNPL firms popping up from left, right, and center. Even big tech wants a slice of the profits from digital transactions.
PayPal’s slice of economic profits has been rich and, until recently, quite well protected. As competitive pressures intensify, though, PayPal’s competitive edge (or its moat) could narrow.
PayPal’s margins are bound to be pressured as rivals weigh, and the lowered 2022 guidance isn’t helping PYPL stock form a bottom. With pundits worried that a recession could be around the corner, the broader payments space could take a bit of a hit.
Shares trade at 27 times trailing earnings. Not absurd, but not a multiple you’d want to pay for a firm that could have its growth story put to the test.
Given uncertainties and a growing number of rivals looking to make a splash in digital payments, I remain bearish on PYPL.
PayPal: Not the Only Game in Town
PayPal makes it so quick and easy to get shopping done online. Its relentless focus on commerce has paid off. However, competitors are taking notice, and it seems like there are a handful of firms that are going after PayPal from different angles.
PayPal has enjoyed solid margins for so long, but I think it needs more than a commerce focus to dodge and weave through the jabs thrown its way by other players in the fintech universe.
The acquisition of Honey was an intriguing one, but it came at a time of frothy valuations. How it fits into the PayPal puzzle is a mystery to me.
Naturally, PayPal could go down the route of a neobank, or double-down on digital payments with a social media platform. Undoubtedly, the latter initiative could be vital to making PayPal stock great again.
Is a Social Media Acquisition Possible?
Still, it could prove challenging to acquire a social-media firm. The Pinterest (PINS) deal fell through in a hurry, and it’s not like PayPal can create its own social platform.
Fortunately, I do think that the broader market sell-off will take regulatory pressure off a name like PayPal. Further, valuations in social stocks like Pinterest could further contract once this rate-induced sell-off has worked its course across the tech scene.
Even if PayPal were to acquire a social-media firm, it’s unclear if the firm will gain the jolt it got back when it was bolted to eBay (EBAY). Arguably, PayPal would do a lot better if it were to merge with a social firm with promising social-commerce potential.
These days, it’s all about TikTok. Social rivals have felt the pressure. Arguably, some consolidation within social media may make sense to defeat the common rival that is TikTok. It will be a tough task, but I do think PayPal will have another opportunity to go after a social-media firm, whether it be Pinterest or something else.
Wall Street’s Take
According to TipRanks, PYPL stock comes in as a Moderate Buy. Out of 33 analyst ratings, there are 27 Buy recommendations, five Hold recommendations, and one Sell recommendation.
The average PayPal price target is $129.13, implying 61.3% upside potential. Analyst price targets range from a low of $85 per share to a high of $190 per share.
Bottom Line on PayPal Stock
PayPal can’t seem to catch a break these days. Though the company is hard at work on innovations to keep competitors at bay, it could prove difficult as we could see a “race to the bottom” as far as transactional costs are concerned.
Indeed, PayPal isn’t the only company offering installments-based purchases.
It’s easy to conclude that PayPal has lost its way. Still, I wouldn’t discount its innovative capabilities. It has a strong management team, but it may need to take a leap of faith with a big merger.
For now, there are too many question marks complicating the PayPal story. That’s why I’m in no hurry to buy this dip. Though many analysts are staying bullish amid the drop.
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