How High Will PayPal Stock Go?

The payments industry offers one of the hottest growth opportunities, with the industry expected to top $361 billion in market size by 2030. Consumers want simpler and safer payments, and fintech companies have stepped up to bridge the gap between the traditional banking system and the new open banking model.

One of the first and most well-known financial technology firms is PayPal (NASDAQ:PYPL), which leveraged its early advantage in the space to become a $62.7 billion company. The company split away from eBay in 2015, and from that point until mid-2021, PYPL gained almost 790%.

Then PayPal fell out of favor with investors and the stock fell accordingly. PYPL is down 81% from the highs of just a few years ago. Increased competition has played a significant role in that decline, as well as a series of major acquisitions that cut into PayPal’s margins.

However, PayPal just handily beat revenue and earnings expectations for the end of 2023. And the company has undertaken a substantial restructuring campaign under new CEO, Alex Chriss, who assumed the helm in the fall of 2023. With new leadership and a new plan that includes a considerable investment in AI, PayPal seems poised for a rally.

So, what does the future hold for PayPal?

Why Did PayPal Stock Drop?

The company reported a solid 4th quarter and an 8% year-over-year increase in revenue for the full year of 2023. And yet, the stock fell by over 11% after the earnings release. PYPL is now down around 4.5% year-to-date.

The main sticking point for investors was guidance for the 1st quarter and full-year 2024 which wasn’t quite as expected. PayPal’s estimate of 2024 non-GAAP earnings per share (EPS) was $5.10 compared to the forecasted $5.48.

Chriss and company attributed the lowered guidance to the uncertainty around the massive restructuring PayPal is in the midst of. The company announced in January that it was laying off 9% of its workforce, or around 2,500 employees, in an effort to streamline operations.

The restructuring has begun to have an impact. Operating margin was up 3% from 13.9% in 2022 to 16.9% in 2023. But it hasn’t been enough to change investors’ minds on the stock yet.

Will PayPal Stock Go Back Up?

The reduced guidance and restructuring concerns have weighed on investors’ minds, but there were a lot of positives to take from the 4th quarter earnings release as well. Net revenue of $8 billion was a 9% improvement over the same quarter of 2022. It was also nearly 2% higher than analysts expected.

Net income skyrocketed year-over-year, up 52% to $1.4 billion. Fourth quarter earnings per share of $1.29 was 8.6% higher than forecasted. GAAP operating margin of 21.5% was up 4.68% year-over-year. That’s another positive sign for the company’s nascent restructuring efforts.

PayPal closed out 2023 with $17.3 billion in cash and cash equivalents, contrasted with debt of $11.3 billion at the end of the quarter. Overall, it was a positive 4th quarter and year for the company.

PayPal’s success enabled it to buy 74 million shares back in 2023, and 10 million shares in Q4 alone. That amounted to $5 billion returned to PYPL holders over the course of 2023.

Analysts Are Divided

The uncertainty around the company’s short-term prospects has analysts divided into buy and hold factions.

Overall, they lean more to the Hold side, with 26 in that camp. There are 23 Buy ratings and 3 of those analysts believe PYPL can outperform the market over the next year. The highest forecast predicts the stock will jump by an impressive 105.12% over the next 12 months.

There is one Sell rating on PYPL at the moment. The most bearish prediction is that PayPal shares will drop to $48 in the next year, a 17.9% loss.

Is PayPal Stock Undervalued?

Despite the reluctance to endorse the stock, the consensus price target is somewhat positive. Another good sign is the company’s price-to-earnings (P/E) value of 15.47 which is much lower than the technology industry’s average P/E of around 30x.

It’s also lower than payments giants Visa and Mastercard which have P/E values above 30x. On a price-to-sales (P/S) basis, Paypal’s P/S value of 2.16 is right in line with competitor Block’s P/S of 2.15.

PYPL might be trading at a bit of a discount, even well below its 52-week high of $79.27. But investors are hungry for a catalyst to jump back in at this point. Artificial intelligence (AI) potential has fueled the recent gains of many a technology stock, and Paypal may very well soon follow suit.

PayPal and its Venmo brand unveiled a six-point plan to introduce AI into their operations. The company believes it can use AI to smooth checkout pain points like slow response time. It also introduced PayPal Fastlane, which allows merchants to offer one-click checkout to their customers.

PayPal Smart Receipts are designed to help track purchases, and merchants can use them to deliver AI-driven recommendations to customers. The PayPal Advanced Offers platform gives merchants data on what customers have bought elsewhere on the internet, collected and organized by AI.

The company’s Cashpass system uses AI to unlock cash-back opportunities for users. PayPal also enhanced its Venmo Business profiles to help small businesses stand out.

How High Will PayPal Stock Go?

PayPal stock is likely to rise to $71.55 per share according to the consensus of 39 analysts, implying 19.7% upside.

All of these innovations are part of the overall restructuring effort to bring PayPal back to the top of the heap. While there are undoubtedly growth opportunities for the company, investors might wonder if it’s too little too late.

Paypal had a very good Q4 but the reduced guidance for the year won’t sit well with many investors who believe the company has already lost too much ground to Block, Stripe, and others.

Still, PayPal is a solid company trading well off its highs. Patient investors willing to hold on are likely to be rewarded if the company’s new initiatives bear fruit.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.