PayPal (NASDAQ:PYPL) stock has underperformed the broader market so far this year. Shares of the fintech giant have declined 10% over the past month and about 21% year-to-date. Investors are worried about PayPal’s business being hit by the impact of macro pressures on consumer spending. They are also concerned about growing competition in the fintech space. Despite near-term pressures, several Wall Street analysts remain bullish on the stock and expect it to rebound strongly once the ongoing headwinds fade. Analysts expect the company to benefit from the secular growth trends in digital payments and e-commerce.
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Robust Long-Term Potential Despite Near-Term Headwinds
PayPal posted better-than-expected revenue for the second quarter despite macroeconomic challenges. Further, adjusted EPS increased over 24% to $1.14, driven by a 7% growth in revenue to $7.3 billion and the company’s cost reduction efforts. PayPal’s Total Payment Volume grew 11% to $376.5 billion in Q3 2023.
However, investors were still disappointed due to the sequential decline in active users to 431 million in Q2 2023 from 433 million in Q1 2023 and 435 million in Q4 2022. Additionally, there are concerns about the impact of growth in the company’s lower-margin unbranded offerings, like Braintree. Nonetheless, the company is focused on improving its profitability and intends to launch high-margin, value-added services and expand beyond the U.S.
On Friday, HSBC analyst Saul Martinez initiated coverage of the U.S. Payments and Consumer Finance sector, noting the significant and continued shift from traditional paper-based payments to digital transactions. The analyst noted that in the U.S. alone, payment behemoths Visa (NYSE:V) and Mastercard (NYSE:MA) processed transactions worth $8.3 trillion in 2022, reflecting a growth of 40% compared to 2020 and nearly double from 2016.
Coming to PayPal, Martinez highlighted that the company is a global leader in digital commerce, with 400 million consumer accounts and 35 million merchant accounts. The analyst said that the company’s transaction profit margin pressure is abating, while expense discipline and share buybacks are expected to drive mid-teen EPS growth.
“Despite conservative valuation approach that adjusts for stock based compensation, see healthy upside potential at current price,” concluded Martinez.
What is the Prediction for PYPL Stock?
Including Martinez, 21 analysts have a Buy rating on PayPal stock, while 11 have a Hold recommendation. At $86.07, the average price target implies about 53% upside potential.
Conclusion
Concerns about competition, with tech giants like Apple (NASDAQ:AAPL) showing keen interest in fintech space, and macro pressures are weighing on PayPal’s near-term performance. However, several analysts continue to believe in the company’s capabilities to further grow in the fintech space and capitalize on the rapid shift to digital payments.
