PayPal Stock: Down 18% This Year; What Now?

A stock isn’t a bargain stock because it has fallen significantly. It is a bargain stock because, after the fall, it has the potential to rise significantly. A lot of investors often confuse the two viewpoints. Payment solutions provider PayPal (PYPL) belongs to the latter category. After a horrible 2021, its fortunes could turn in the new year, and crypto could give it firm support. I am bullish on PayPal stock. (See Analysts’ Top Stocks on TipRanks)

Strong Numbers

PayPal reported strong numbers for Q3 2021 earnings. Total payment volume (TPV) hit $310 billion, while its net revenue was $6.18 billion. These numbers have grown by 26% and 24% year-on-year, respectively.

The company has 416 million active accounts, thanks to a net addition of 13.3 million new active accounts in the quarter. It also generated $1.3 billion in cash flow.

Every active account conducts 44.2 transactions a month. This represents an increase of 10% year-over-year. The company added over 1.2 million merchant accounts on its platform. 

Its P2P (peer-to-peer) volume, including PayPal, Venmo, and Xoom, was up 24% at $92 billion, representing 30% of TPV. Venmo was the biggest contributor, surging 36% to $60 billion. eBay Marketplaces TPV declined 46% and accounted for only 3% of TPV. Merchant Services TPV, excluding eBay Marketplaces, grew by 30%.

The company said it expects to end Fiscal Year 2021 with revenue growth of around 18% in Q4 and over 430 million active accounts (including around 3 million accounts after its acquisition of Paidy). Net revenue is expected to come in the range of $25.3 billion to $25.4 billion. 

Betting on Buy Now Pay Later

PayPal continues to grow its Buy Now Pay Later (BNPL) footprint, which has an over $8.0 billion TPV run rate. Its services are available in Australia, France, Germany, Japan, the United Kingdom, and the United States. It will expand to Spain and Italy in Q4.

It completed its acquisition of BNPL platform and provider Paidy in Japan on October 13, 2021, for $2.7 billion. It has also eliminated late charges for its BNPL customers from October 1.

A lot of fintech companies believe that BNPL is the big growth engine of the future. An example of this is when Block, formerly known as Square (SQ), acquired AfterPay for $29 billion in August 2021.

The Bull Case for PayPal

While PayPal stock has taken a hit in 2021, the bull case for the stock is not going anywhere. To get an indication of the utility value of the company, one only needs to take a look at its numbers for Giving Tuesday in 2021.

A release said, “PayPal today announced that it processed a record-breaking $188 million globally this Giving Tuesday, the largest amount raised on the platform for the global day of giving since Giving Tuesday’s inception in 2012. More than 1.6 million PayPal customers across 193 markets donated to causes they care about, amounting to over 2.1 million donations in total.”

One reason the stock has fallen could be that PayPal isn’t growing as fast as it could. However, logically, it can’t. It is not the same company it was 10 years back. It started life as a payment solution provider for eBay. Today, eBay is a small contributor to its revenues. 

PayPal is one of the largest fintech players in the world. Its P2P product Venmo is one of the fastest-growing ones and even received a spot in Marvel’s Shang Chi. The company’s partnership with Amazon (Venmo users in the U.S. will be able to pay with Venmo on Amazon.com starting in 2022) and the Paidy acquisition in Japan should serve it well in the years to come.

Perhaps, the company’s acquisition of Honey Science Corporation, announced in 2019, was one of the most important decisions in its lifespan. Honey is a deal-finding and rewards program for consumers. This move gave PayPal the ability to become part of the customer’s shopping journey from the get-go instead of trying to convince them to use it as a preferred checkout tool at the end of their journey.

This line on Honey’s website sums it up well: “This means we will be able to make it even easier to search for great discounts when shopping online.”

The Crypto Move

In September, Square’s Cash App announced that it had over 70 million transacting users, just 10 million short of Venmo’s 80 million. A major reason for Cash App’s popularity is that it allowed crypto trading on its platform.

While PayPal has been a little slower than Square in this segment, it hasn’t been sitting idle. In late 2020, it launched its cryptocurrency trading platform. Its customers can also use cryptocurrencies, such as Bitcoin and others, with merchants who accept the asset. In April of this year, the company also launched crypto services on Venmo.

Wall Street’s Take

Turning to Wall Street, PYPL earns a Strong Buy consensus rating based on 25 Buys, five Holds, and only one Sell rating assigned in the past three months.

The average PayPal price target is $272.62, which indicates 41.9% upside potential. The highest forecast for PYPL is $342 which is a potential upside of almost 86%.

Conclusion

PayPal remains one of the leading growth stocks in the current market. I believe the recent drop should be viewed as a buying opportunity.

Disclosure: At the time of publication, Hashtag Investing did not have a position in any of the securities mentioned in this article.