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PayPal stock analysis. Ticker: $PYPL
PayPal stock is up 20% since November but shares are still down 80% from their 2021 peak.
At the current price, PayPal has a market cap of 68 billion dollars. Account for cash, investments and debt and the enterprise value is 63 billion. With net income of 3.8 billion over the last 12 months, the company is trading at just 18 times earnings.
Although PayPal is an impressive business, the decline in Paypal stock does make sense. Growth in ecommerce has normalized since the pandemic and that has led to a slowdown in revenue growth. More importantly, increased competition in the payments space is impeding on PayPal’s market share and causing a race to the bottom in pricing. Storefront competition comes from the likes of Google Shop and Apple Pay while backend competitors include Stripe, Adyen and Worldpay.
The result of this competition is lower pricing and PayPal has seen its take rate decline consistently over the last few years. Lower take rates mean lower profits with Paypal’s net income margin falling to under 9% in 2022, its lowest reading since 2014.
Net margin has recovered this year to 13% but that isn’t because the company has reversed profit growth. Rather, its because the company has taken an axe to spending. Sales and marketing expense is down 22% while technology and development cost is down almost 10%.
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