Friday, February 23, 2024
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PYPL Stock Forecast: A PayPal Turnaround IS Coming. Just Not This Year.

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What have you done for me lately? That’s the approach this PayPal Holdings (NASDAQ:PYPL) stock forecast will consider. The payments platform that just reported fourth-quarter earnings and saw its stock tank after hours. Despite a solid beat on revenue and earnings, the market sold off shares because of soft guidance and a decline in active accounts.

The ailing fintech stock was barely keeping its head above water but is now at a loss for the year. Is it really going to be another dismal year for PayPal investors after the 20% loss or so in 2023? Or does a PYPL stock forecast indicate now is the time to buy in for the coming rebound?

Weakness in the PYPL Stock Forecast

Investors are going to need to more patience for PayPal’s turnaround to happen. Management is putting the pieces in place to engineer a return to growth. It’s just taking longer than expected for it to gain traction.

PayPal saw total volumes rise 15% from last year to $410 million with transactions up 13%. Payment transactions per active account also rose 14% on a trailing 12-month basis. Yet the number of active accounts declined 2% to 426 million. Essentially PayPal is getting users to do more with its service though it has less of them.

That led revenue to rise 9% to $8 billion handily, topping consensus estimates of $7.87 million. Adjusted earnings jumped 19%, rising to $1.48 per share, also beating Wall Street forecasts of $1.36 per share.

PayPal recently announced it was firing 9% of its workforce to help contain costs. The management plans to invest in other areas to help ignite growth. It’s good that PayPal is looking down the road instead of trying to please Wall Street here and now, but it means the turnaround is more difficult than believed and will take time to achieve.

Jumping on the AI bandwagon

PayPal continues to explore new opportunities. Last month it launched six new artificial intelligence (AI) enhancements to efficiently improve the checkout experience while also providing new discovery tools for merchants and consumers.

Although they appear derivative of what you can find elsewhere, it may help bring users back for more. Think of it as a necessary progression instead of a trailblazing development.

The payments platform is also investing more in Braintree, PayPal’s payments service provider. PSPs manage online payments for merchants, moving the money from the customer through the bank and into the business’s account.

Braintree authorization rates improved 240 basis points in Q4 and PayPal says it gained market share and greater merchant approval. Much of the transaction growth PayPal saw in the quarter was because of Braintree.

It is also expanding the reach with its Venmo cash app with the launch of a Venmo debit card. It notes cardholders are among its most-engaged users, with 6% of active Venmo users having a card. That suggests there is plenty of room for greater adoption.

Patience with PYPL

So should an investor buy now? PYPL stock looks undervalued. It trades at just 19 times earnings and 10 times estimates. PayPal has never traded at such low valuations in its entire time as a publicly traded company. The same goes for its price-to-sales ratio. It’s as low as it’s ever been.

Competition is fierce in payments, which pressures margins, but PayPal possesses a large platform trusted by both merchants and consumers. Unfortunately, it’s fairly limited to the e-commerce space which narrows its field of opportunity. 

That’s why both Venmo and Braintree are where its growth potential lies. The launch of AI tools also bodes well for the future, even if they’re not any groundbreaking tools. It shows PayPal can adapt to new models. But I’ll take management at its word that we’re not likely to see much of a turnaround this year before things improve in 2025.

That’s why an investor could buy in now. Rarely does someone pick the perfect entry point and with the stock at a decent valuation and potential growth to come, picking up shares now and holding for the long term makes the most sense.

On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

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