All about PayPal

PayPal was founded in March 2000 and is an American e-commerce company that focuses on online money transfers.  It functions as an electronic substitute for conventional paper-based methods like money orders and checks. The business charges a fee for its services as a payment processor to numerous commercial users, including auction sites and online retailers.

Originally founded as Confinity in 1998, PayPal went public through an initial public offering (IPO) in 2002. Later that year, it was acquired by eBay as a wholly owned subsidiary, with a $1.5 billion valuation. 2015 saw eBay separate PayPal and return it to its owners, regaining its independence. According to revenue, the company came in at number 143 on the Fortune 500 list of the biggest US corporations in 2022. PayPal has been a part of the MACH Alliance since 2023.

PayPal: A closer look

For the benefit of retailers and customers everywhere, PayPal Holdings, Inc. is a technology platform that makes digital payments possible and streamlines the purchasing process. Through the company’s payment solutions, users can communicate, make transactions and exchange money both in person and online. With a total of 4 million active accounts in over 200 markets, it runs a massive, two-sided global network that links consumers and merchants.

PayPal Zettle, PayPal Honey, Venmo, Xoom, Hyperwallet, Braintree, PayPal, and Paidy are some of its brands. Through a number of funding sources, including bank accounts, PayPal or Venmo account balances, credit products bearing the PayPal and Venmo brands, including installment cards, credit cards, debit cards, certain cryptocurrencies, and other stored value products like gift cards, customers can exchange money with merchants. Additionally, it provides person-to-person (P2P) payment options to users.

About eBay & PayPal

eBay, the online auction company that owned PayPal from 2002-2015, made extensive use of it. After X.com and Confinity merged, Paypal was created, enabling users to safely transfer money between accounts or pay for items they had purchased online.

eBay purchased PayPal for a total of $1.5 billion in October 2002, having witnessed PayPal emerge as the top option for buyers at online auctions. By enabling users to link their PayPal accounts to their bank accounts, the company allows more efficient transfers and payments than money orders or checks. In some cases, eBay charges fees for transactions. These fees are calculated according to the type, amount, and currency of the transaction. PayPal was split off into a separate business in 2015, but eBay kept using it.

PayPal security system

PayPal’s reputation as a trustworthy company for preventing identity theft has been maintained through a complex array of security innovations. Advanced phishing prevention and anti-hacking measures were put in place by the company, and it created a portable “key” device that needs to be manually activated prior to a transfer from an account with PayPal can be completed.

Customers who feel they have been fooled or deceived by a transaction can dispute the transaction and ask for a refund through PayPal. Furthermore, PayPal provides sellers with a kind of restricted protection in addition to a mechanism that deactivates accounts upon detection of unusual or suspicious activity.

PayPal & Mizuho Downgrade

Most Wall Street analysts who follow PayPal Holdings Inc. stock are skeptical for the first time.

Recently, PayPal’s stock PYPL, 5.97% was downgraded by Dan Dolev of Mizuho to neutral from buy, meaning that 23 analysts now have hold-equivalent ratings for the company. According to monthly FactSet data, buys no longer make up the majority of ratings when one of the 47 analysts covering PayPal’s stock has a sell-equivalent rating.

The stock of the massive digital payments company PayPal (PYPL) dropped 4.2% and continued to decline in pre-market trading following Mizuho’s downgrade of the company’s stock from “buy” to “neutral,” citing growing competition in the payments market. Analysts issued a warning, stating that the company’s market share might be threatened by more recent payment methods like Apple Pay and buy-now, pay-later (BNPY) financing options, which appeal to younger generations. The bank also pointed out that the business delays behind competitors in terms of mobile checkout services and that an excessive dependence on its lower-margin unidentified payment product may be hitting profit margins. Furthermore, Mizuho reduced its 12-month price target for the stock from $72 to $65.

Over the previous 12 months, PayPal shares have fluctuated within an orderly descending channel, which has helped to clearly identify support and resistance areas on the chart. The upper trendline of the channel, which roughly corresponds to the 200-day moving average, has provided overhead resistance for the price, preventing it from rising above $65 in recent weeks. If the stock continues to decline, keep an eye on how the price reacts to the lower trendline of the pattern, which is currently located at $47.50.

The consensus opinion among analysts is that PYPL stock is still a moderate buy, despite the Mizuho downgrade. That’s a close call, though, with 16 holds and 14 buys. Furthermore, the average price target is $71.08, which suggests a potential upside of roughly 22%.

History

In the beginning of 2020, almost 90% of analysts who covered PayPal’s stock were bullish. The company was once a Wall Street favorite. But due to worries about margins and competition, the stock has taken a severe hit in recent years and is now trading 80% below its all-time high.

Dolev wrote in his downgrade, “Our data suggests that market share loss to Apple Pay looks increasingly challenging.” “We are also concerned about a growing age-demographic issue, since younger generations in the United States are favoring newer payment methods such as buy-now-pay-later, auto-fill, and Apple Pay.”

Dolev claims that although PayPal has historically performed well with desktop checkout, the company isn’t as strong on mobile, where more customers are making transactions these days. 1.46% of Apple Inc.’s AAPL In contrast, Apple Pay performs better on mobile devices than on desktop computers.

More on PYPL stock

Long-term owners of PYPL stock have valid concerns if they take this information at face value. The bank-owned P2P payments app Zelle saw a 10% rise in the number of transactions between the first and second quarters of last year, based to a Payments Dive article. The momentum indicates a continuation of Zelle’s upward trend in 2022, which increases the pressure on PYPL stock.

Furthermore, there was a great deal of suffering for PYPL stock after Amazon (NASDAQ:AMZN) decided to stop accepting Venmo payments. Venmo’s growth trajectory progressively shifted northward in the quarters preceding Amazon’s plug-pulling call, as PYMNTS noted.

However, it’s crucial to remember that Venmo and PayPal together have a sizable amount of brand awareness. A Pew Research Center study indicates that 57% of American adults use PayPal. Additionally, 38% of Americans use Venmo, compared to 36% who use Zelle. To overthrow this dominance might take some time.

The dark skies surrounding PYPL stock could be alluring to investors who lean towards contrarian investing. Shares are currently trading for just 17.59X trailing-year earnings. Even though that is more than the credit services industry’s 13.5X multiple, it is still a significant reduction from earlier prints. In Q2 2020, for instance, PYPL traded at a multiple of almost 80X.

Disclaimer:
This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.