PayPal's shares have fallen more than 50% cumulatively so far this year, plunging about 66% from their all-time highs. This decline is much higher than the decline in the information technology sector of the U.S. Standard & Poor's 500 Index, and it may be the clearest indication of investors' loss of confidence in the company.
Analysts estimate PayPal to post a 10 percent increase in revenue when it reports third quarter financial statements on Thursday , while earnings per share are expected to fall about 14 percent from a year ago.
If these estimates are correct, this would mark a significant decrease in PayPal's performance now compared to the period of the epidemic. Its revenue growth in fiscal 2020 and 2021 is 21% and 18%, respectively, as the company benefits from the historic online shopping and digital payments driven by the epidemic. However, while PayPal's business has seen a significant short-term slowdown, we believe the company's long-term outlook remains intact. First, PayPal's attractiveness lies in the fact that the company's valuation will level off after the excessive bubble that developed during the epidemic. Its current expected P/E ratio is just 18x, well below the ~30x of December 2019 and the 36x average of the past five years. Second, when the relationship between PayPal and eBay (NASDAQ:EBAY) finally ends, the company's business has stabilized and will not be too volatile. Previously, eBay sought to move to a new payments overdose, which it will complete by the end of 2021. Still, eBay's revenue impact on PayPal was factored into the company's underlying numbers for the same period last year, thus dragging down growth by about 4 percentage points. By the fourth quarter of this year, that impact will have completely disappeared, and PayPal will be fully on track. And most importantly, PayPal still has strong growth prospects. PayPal Inc. was born in 2000 from the merger of X.com, an online bank founded by Tesla CEO Musk, and Confinity, a software company. PayPal was acquired by eBay for $1.5 billion in 2002 and spun off as a separate entity in 2015. Now, it turns out, there are more catalysts that could drive PayPal shares higher - PayPal's CEO Dan Schulman has a plan to increase PayPal's operating leverage, which is the ability to increase revenue growth faster than expense growth. In the second quarter, PayPal's expenses grew by 18 percent. And that effort is expected to progress after rights investor Elliott Investment Management increased its stake by $2 billion, making it one of the company's largest shareholders. dan Schulman said recent cost-cutting measures could help the company will save $900 million this year. In addition, the company recently approved a $15 billion share buyback, which should support the stock price. Given this strong outlook, InvestingPro's valuation model also predicts that PayPal's stock price is highly attractive at current levels.
In a recent report, Raymond James set a $123 price target of Paypal on the stock. The investment bank's report said, "PayPal is a suitable stock for investors to focus on in the current market conditions, the company is driven by long-term positives, is defensive, and is reasonably valued based on the company's balance sheet, revenue expectations for fiscal 2023. In conclusion, it will be beneficial for Paypal to provide various services in the future, such as a checkout button for merchants and a 'pay with Venmo' option on Amazon.
