PayPal Holdings (NASDAQ: PYPL) may be the largest digital money transfer service platform, and it may also be among the fastest-growing companies on the publicly traded market today, but is that enough to make it a worthy investment right now?
Today PayPal is considered one of the largest payment networks, globally. The service connects nearly 395 million consumers and roughly 35 million merchants. By adding new services and financial products over time, they have certainly climbed their way to the top of what is now a very competitive space.
PayPal is The Industry Leader
In all, PayPal's broad expansion across the financial services landscape has made their brand name interchangeable with the term digital payments, even if there are now several other companies offering digital wallets and other related services. At $110 trillion, though, PayPal certainly dominates this market, even if that total payment volume—from last year, alone—represents only 1 percent of their market opportunity.
With a strong track record for both earnings and sales growth for at least the last twelve years, PayPal sure looks like a strong investment. Starting in 2010, PayPal has been growing by leaps and bounds year after year. In that year, for example, it had only earned about 29 cents per share. Nine years later, they reported an impressive $2.96 EPS. Then, in 2021, PayPal had grown its earnings per share by another 31 percent, to $3.88. Finally, they managed to expand by an additional 18 percent last year, to bring their EPS up to $4.60.
Is PayPal's Slowing Growth Cause for Concern?
That said, however, analysts now expect they may have hit the ceiling and could fall by as much as 15 percent by the end of this year. This is not necessarily bad because if it does fall, it could also potentially rebound by nearly 25 percent in 2023. As a result of this consistently stellar performance, analysts have given PayPal an EPS rating of 80 (out of a possible 99). EPS rating measures a company's year-over-year growth proficiency. While growth for the past few quarters may have been slower than usual—with a 24 percent annual pretax margin and a 26 percent annual ROE, last year—PayPal has received an SMR Rating of B.
After the close of day on April 27, PayPal reported its first-quarter earnings. This report noted that PayPal's earnings registered at 88 cents. This is 28 percent down from the same period last year. Fortunately, though, this is somewhat balanced by revenue growth of 7 percent, to $6.48 billion. So, despite lower earnings, PayPal stock still added more than 11 percent as a result.
PayPal and Cryptocurrency
One thing that may be the cause of PayPal's stifled growth could by complications with cryptocurrency products. Block, for example, is similar to PayPal in its ability to market apps that provide shoppers with benefits like discounts, make pay installments, and access to various cryptocurrencies.
Of course, PayPal started out as a simple P2P digital money transfer service that allows users to transfer money between friends and family members. But, as with most business models, PayPal has recently expanded its offerings to include a cryptocurrency trading service that allows users to buy and sell Bitcoin. Not only this, but PayPal users can also use their cryptocurrencies to shop online, among the approximately 28 million merchants within their marketplace network.
Adding cryptocurrency offerings appears to be only a part of their growth strategy moving forward. Not even a year ago, PayPal introduced a new digital wallet feature which now supports crypto-trading, as well as in-store payments with QR codes and a new “buy now, pay later” feature.
PayPal is Down But Not Out
But these additions may not be enough to re-accelerate PayPal's growth; at least, not right now. After all, investors may have initially overvalued PayPal stock, earlier this year. But even if that were true at the time, anyone advising on this rating did not expect PayPal's value to plummet as much as it did.
The release of Q1 earnings certainly indicates such, with revenue growth of only about 7 percent, to reach $6.5 billion. In addition, non-GAAP earnings slipped by 28 percent, to $0.88 per diluted share.
All of this has pushed PayPal stock down to its lowest valuation numbers since it went public in 2015. With the stock trading at four times sales, at present, PayPal could be an enticing bargain for investors right now. However, you may have to accept that more decline will come before you can capitalize on this price.
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