Is PayPal’s New Crypto Service a Game Changer for Investors?

In 2009, the Bitcoin network started, bringing digital stable money and changing the finance world. Five years later, Ethereum came up with smart contracts on a big scale. This helped grow decentralized finance (DeFi), blockchain games, and new Web3 platforms.

These are becoming more popular as the world changes from regular banking to digital money. Cryptocurrencies are changing how finance works and can make big changes in the financial world. Big banks and institutions are investing resources into discovering how crypto can improve business models.

Seeing these changes, PayPal Holdings, Inc. (NASDAQ:PYPL) has entered the crypto market with a new service. Working in a huge global e-commerce market worth over $6 trillion, PayPal gains advantages from more payments and shopping moving to digital forms.

In the second quarter of the fiscal year, PayPal had 429 million total active accounts. This number includes 222 million monthly active users, showing an increase of almost 2 million since the first quarter. This points out steady growth on all its platforms.

What Growth Levers is PayPal Targeting?

Over the last year, PayPal has changed how it runs its worldwide business. Instead of offering many separate products and services, the company is now trying to make everything more connected. An important part of this change happened in May when PayPal teamed up with MoonPay, a leading company in Web3 infrastructure.

The collaboration allows United States’ MoonPay users to purchase cryptocurrency easily using their PayPal accounts. This integration would help PayPal by making transactions easier for MoonPay users who already know and trust PayPal for online payments.

Letting people buy cryptocurrency using their PayPal Balance, direct bank withdrawals, or debit cards without having to type in details themselves makes things simpler and more convenient.

As more people look into new financial systems like cryptocurrency, retail investing, and digital banking, the partnership shows PayPal’s plan to give better access to these choices. By working with reliable partners such as MoonPay, PayPal is strengthening its place in the changing world of finance.

How Is PayPal’s Recent Financial Performance?

In the second quarter of fiscal year 2024, which finished on June 30, PayPal announced an increase in net revenue by 8.2% compared to the same time last year, making $7.89 billion. The company’s non-GAAP operating income also went up, rising by 23.6% from the previous year to $1.46 billion.

Plus, PayPal’s non-GAAP net income increased by 28% compared to last year’s quarter, reaching $1.24 billion. Non-GAAP earnings per share grew strongly, rising 36.8% to $1.19.

Even though there are good financial signs, PayPal had a big cash outflow from investing activities, totaling $4.65 billion. This is very different compared to the same quarter last year when it had a cash inflow of $1.44 billion. Also, the company’s cash and cash equivalents decreased to $7.70 billion on June 30, 2024. This figure was higher at $9.08 billion as of December 31, 2023.

The mixed financial situation shows PayPal can grow revenue and income but also points out problems with more cash going out and less in reserves. The company’s spending could be key for future growth.

Is PayPal Profitable?

PayPal’s trailing-12-month Return on Common Equity is 22.03%, 112.5% higher than the industry’s usual return of 10.37%. Its trailing-12-month Return on Total Capital is 10.32%, which surpasses the industry average of 6.93% by 48.81%.

Also, the company’s trailing-12-month Return on Total Assets stands at 5.28%, higher than the industry average of 1.07% by a margin of 395.1%.

Even though PayPal sees strong returns, it has issues with profit margins. Its trailing-12-month gross profit margin is 39.58%, 34.8% less than the sector average of 60.70%. In the same way, PayPal’s trailing-12-month EBITDA margin is 19.01%, which is less than the industry average of 22.58% by about 15.8%.

Also, the company’s trailing-12-month net income margin is facing challenges at 14.30%, making it lower than the industry average of 22.49% by around 36.4%. This difference suggests that PayPal needs to make some smart changes to improve profits.

How Will Bitcoin Affect PayPal?

The rising bitcoin price of over $100,000 provides PayPal shareholders with a strong tailwind and a much needed innovation curve to drive higher share price.

For Q3, analysts had expected PayPal’s revenue to grow by 6.2% compared to last year but in fact it came in at $7.7 billion. This increase if it came to fruition would have led to revenues of $7.88 billion. However, EPS was predicted to drop by 18.2% compared to the previous year, reaching $1.06.

Looking to the fiscal fourth quarter of 2024, which finishes in December, experts expect PayPal’s revenue could go up by 5.5% from last year, making it $8.47 billion. But, the EPS is predicted to decrease by 26.2%, becoming $1.09.

Also, the valuation of PayPal shows mixed aspects. The forward EV/Sales ratio for PayPal is 2.10x, which is 33.3% less than the industry average, which stands at 3.15x. Similarly, its forward Price/Sales ratio is 2.12x, 21.4% lower than the industry average of 2.69x.

But, PayPal’s forward non-GAAP P/E ratio is 15.05x, 36.1% more than the sector average of 11.06x. Also, the company’s forward EV/EBIT ratio stands at 12.03x, surpassing the industry average by 5.7%.

Plus, PayPal’s forward Price/Book ratio of 3.25x is much higher than the sector average of 1.12x. The difference here shows that PayPal’s ratio is 190.5% more than what you usually see in this industry segment.

Among 39 analysts, 21 recommend a cautious “wait and see” approach but the upside is to $92 per share, so as much as 20.4% remains on the table for new buyers if realized.

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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.