PayPal’s (PYPL) stock has experienced significant volatility, surging during the pandemic due to increased online payments but falling nearly 80% from its peak.

The company faces short-term challenges like competition and losses from BNPL loans, which affect profits.

Despite slowing new account additions, existing users are more engaged, driving higher payment volumes and fees.

PayPal’s global network remains strong, and with strategic adjustments, it has the potential for future growth despite current market pessimism.

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The story of PayPal’s (PYPL) stock performance over the past few years has been a rollercoaster ride.

After surging at the start of the pandemic on expectations of benefiting from higher online payments, the stock has since pulled back nearly 80% from its highs.

However, a deeper look tells the tale of a company facing short-term challenges while possessing compelling long-term potential.

When Covid-19 struck in early 2020, PayPal was in the right place at the right time.

As lockdowns sent consumers online, the company processed billions more monthly payments.

Its stock price more than doubled, hovering around $300 per share.

Investors had visions of unchecked growth as digital payments became even more ingrained in daily life.

But reality set in as reopening economies caused spending patterns to normalize.

PayPal also faced headwinds including rising competition and expanding into new business lines.

One such initiative was buy now pay later (BNPL) financing for customers.

Though helpful for merchants during the spending boom, BNPL loans soured in the current economic slowdown.

In 2023, PayPal wrote off many of these debts as borrowers struggled with inflation and rising interest rates. The losses hurt profits and added risk to the balance sheet.

PayPal’s stock began to falter, and the declines accelerated.

Another sore point was the addition of fewer new accounts, a key metric for growth companies. Some investors saw this as a failure to attract new customers.

But the full story is more complex. While account additions slowed, PayPal’s existing user base became more engaged and profitable.

Each active account now generates significantly more payment volume and associated fees than before.

And though total accounts leveled off, transaction numbers and overall payment volume processed by PayPal continue climbing each year. Its global network of merchants and consumers remains immense.

There are also factors like Apple’s (AAPL) growing digital wallet that threaten PayPal’s leadership.

However, the company has a huge incumbent advantage, and we can say that fears over Apple Pay are overblown.

Furthermore, PayPal is still seeing robust growth in online merchants with Braintree.

If PayPal can optimize operations and refine its strategy, it has the potential for future growth, despite its stock price already pricing in too much negativity.

Best regards,

Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research
at Valens Research