Basketball enthusiasts often resonate with the phrase, "It's a game of runs." It conveys that no team consistently holds the upper hand throughout a game — they experience peaks and troughs.
In a similar vein, stock markets echo this pattern. Regardless of its prowess, no company can boast of a perpetually upward trajectory — they too, experience volatility due to multiple factors.
This cyclic nature is why a stock can be a promising pick for long-term investors, even when it is navigating turbulent waters, given the company possesses the attributes for a rebound. Let's delve into the trajectory of PayPal Holdings (NASDAQ: PYPL), a stock that has faced headwinds since January 2022 and is down 80% from all-time highs.
Here’s a breakdown of why this fintech behemoth remains a compelling long-term investment choice.
Why is PayPal stock down?
The efficacy of a company's leadership, particularly its CEO, is paramount in driving its success. Dan Schulman, who has steered PayPal since 2014, is nearing the end of his helm. Given the company's admirable performance under his stewardship, a sense of uncertainty among investors about its future trajectory is natural. However, leadership transition is one of many challenges PayPal has grappled with recently.
Following an unprecedented surge during the initial phase of the pandemic, there's been a noticeable deceleration in PayPal's momentum — both in terms of revenue growth and the influx of new active accounts.
Economic challenges have undeniably impacted PayPal's performance. The company's revenue is primarily generated from transaction fees. In the past 18 months, a sluggish macro environment has led to fewer transactions and dampened this revenue stream. Moreover, valuation concerns emerged as PayPal's stock appeared somewhat overpriced, leading to a possible necessary correction.
However, here's why there's optimism for PayPal and its potential to offer substantial returns for long-term investors:
Many of the challenges faced by PayPal are temporary or addressable. Economic downturns don't last indefinitely. As economic conditions improve, it is likely to uplift PayPal's performance. Additionally, PayPal has announced its new CEO, Alex Chriss, is slated to assume his role by the end of September.
Currently serving as an executive at Intuit (NASDAQ: INTU) — a company providing financial services to individuals, entrepreneurs, and small to medium-sized businesses — Alex Chriss boasts an impressive tenure of 19 years.
He ascended through Intuit's hierarchy and has been helming the company's unit catering to small businesses and self-employed professionals since January 2019. Under his leadership, this segment witnessed robust growth, expanding its customer base and revenue at compound annual rates of 20% and 23%, respectively.
Given this, PayPal's incoming CEO brings a rich experience in business and consumer-centric financial services, precisely the kind of expertise the company requires at its helm.
Is PYPL stock a good buy?
PayPal offers consumers a swift and seamless payment experience with merchants while providing businesses with tools for risk management, data-driven strategies to boost conversions, and more. As of the last report at the close of the second quarter, PayPal boasted 35 million merchant accounts and a whopping 400 million consumer accounts. This underlines a significant strength of PayPal: its network effect. Essentially, as more individuals use its platform, its value escalates.
The growth in the consumer base makes it more appealing for businesses to join, and the same holds true in reverse. Over time, with a consistent increase in users, particularly under the leadership of a CEO adept at launching customer-centric products – which the new CEO, given his tenure at Intuit, seems primed to deliver – PayPal's user accounts are poised to surge. An additional feather in PayPal's cap is its strong brand reputation.
Having established itself as a trailblazer in the fintech domain, PayPal's name has become synonymous with the industry. With e-commerce on an upward trajectory and the increasing shift towards digital payment methods, the fintech sector is primed for rapid growth. Given PayPal's inherent advantages, coupled with its leadership transition, the future looks promising for the company to yield enhanced returns.