PayPal PYPL shares are one of the cheaper stocks in the Zacks Internet Software with a Value Score of B.
PYPL stock is trading at a significant discount with a forward 12-month P/E of 17.91X compared with the industry’s 34.87X.
PayPal’s cheap valuation is attractive for investors. However, is it worth buying at current prices?
Let’s dig deep to find out.
PYPL’s P/E Ratio (F12M)
Image Source: Zacks Investment Research
PYPL Stock Rides on Strong Portfolio
Year to date, PayPal shares have returned 41.6%, outperforming the broader Zacks Computer and Technology sector’s return of 30% and the industry’s appreciation of 29.8%.
Year-to-Date Performance
Image Source: Zacks Investment Research
PYPL shares are trading above the 50-day and 200-day moving averages, indicating a bullish trend.
PYPL Shares Trade Above 50-Day & 200-Day SMA
Image Source: Zacks Investment Research
PYPL’s portfolio strength has been helping it maintain deep and trusted relationships with merchants and consumers. Its two-sided platform helps develop direct financial relationships with customers and merchants.
Expanding clientele benefited total payment volume, which increased 9% year over year, both on a spot-rate basis and forex-neutral basis, to $422.641 billion in the third quarter of 2024.
PayPal saw year-over-year growth of 1% in total active accounts to 432 million, while payment transactions per active account were 61.4 million, up 9% year over year.
Transaction margin of $3.7 billion grew more than 8% on a reported basis and more than 6% ex-interest on customer balances, driven by higher interest income, branded checkout, Venmo, Braintree, and tech-led risk/loss improvements.
PYPL saw a 15% to 20% increase in Buy Now, Pay Later use.
Strong portfolio is a growth driver for PYPL. Unveiling of Fastlane, which enhances the guest checkout experience by allowing users to complete their purchase in one click, remains noteworthy. Since its August launch, more than 1,000 merchants using Fastlane to provide a seamless experience to their customers and drive increased conversion.
Currently, it is available in the United States. Fastlane is based on the company's decades of payment expertise to innovate and accelerate the guest checkout experience.
Launch of PayPal Complete Payments in new geographies, including China and Hong Kong, expands its footprint among small and medium-sized businesses (SMBs). PayPal expects to expand its service to more markets in 2025.
Expanding Partner Base Aids Prospects
PayPal’s expanding partner base, including Fiserv, Adyen, Amazon AMZN, Global Payments and Shopify SHOP, is driving prospects. The rich partner base is expected to help increase the adoption of PYPL’s Fastlane.
PayPal is now an additional processor for Shopify Payments in the United States. Its branded checkout solutions are now integrated into Shopify Payments. This creates a single and unified experience for business owners to drive operational efficiency.
PayPal’s partnership with Amazon now brings PayPal Checkout to SMBs offering Buy with Prime. In 2025, it will give Prime members the option to link their Amazon and PayPal accounts so that consumers can receive Prime shipping benefits when they use PayPal while shopping with Buy with Prime.
Its collaboration with Apple and Google to integrate the Venmo debit card with Apple Pay and Google Pay has been a noteworthy development.
PayPal is a top payment method for advertisers and consumers globally across Meta Platforms’ META family of apps. Creators and developers are using Hyperwallet. META also uses Braintree for credit card processing.
PayPal’s Positive Outlook is a Key Driver
For 2024, PayPal now anticipates non-GAAP earnings to see high teens growth (up from previous guidance of low to mid-teens growth) over 2023.
The Zacks Consensus Estimate for earnings is pegged at $4.56 per share, suggesting a 10.59% decline over 2023’s reported figure. However, this figure has improved 3.2% over the past 30 days.
The consensus mark for revenues is currently pegged at $31.67 billion, indicating 6.39% growth over the 2023 reported figure.
PayPal Holdings, Inc. Price and Consensus
PayPal Holdings, Inc. price-consensus-chart | PayPal Holdings, Inc. Quote
PayPal expects transaction margin dollar growth in the mid-single-digits for 2024.
For the fourth quarter of 2024, PayPal expects low-single-digit revenue growth. The Zacks Consensus Estimate for revenues is pegged at $8.25 billion, indicating 2.83% year-over-year growth.
Non-GAAP earnings are expected to exhibit a low to mid-single-digit decrease on a year-over-year basis.
The Zacks Consensus Estimate for earnings is pegged at $1.11 per share, indicating a 25% decline from the figure reported in the year-ago quarter. However, the earnings figure has increased a couple of cents over the past 30 days.
What Should Investors Do With PYPL Shares?
PayPal’s robust portfolio, expanding partner base and cheap valuation are key drivers that make the stock attractive for long-term investors. Hence, investors who already own the stock may expect the company's growth prospects to be rewarding over the long term.
However, PYPL expects lower Braintree volume and revenue growth in the fourth quarter and through 2025. Higher non-transaction operating expenses due to marketing spending are expected to hurt profits in the fourth quarter of 2024. Non-transaction operating expenses for 2024 is now expected to increase in the low-single digit range. The trend is likely to continue in 2025.
PayPal currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
