Company Reports

PayPal's third-quarter results were somewhat mixed, but overall, we think they show progress, and management lifted full-year guidance.

PayPal’s early development of a network of merchants and consumers enabled the company to build and maintain a strong competitive position in the online payments channel. Historically, PayPal’s growth had been driven by the ongoing shift toward electronic payments and the rise of e-commerce, which the coronavirus pandemic temporarily accelerated. However, the company has faced headwinds as the pandemic-related positives reversed and new competition emerged. Management has sought to counter pressure on top-line growth by increasing focus on cost control and product innovation, with the goal of shifting to more profitable growth.

Bloomberg has reported that Stripe and Advent are no longer in talks to buy PayPal. In reaction to this news, PayPal's shares were down 11% in trading on Aug. 28.

Overall, while results were somewhat mixed, we think PayPal showed good progress in the second quarter as the new CEO begins to execute his plan.

Reuters reported that Stripe and private equity firm Advent International have made an offer to buy PayPal in a deal that would value the company at $53 billion.

PayPal's first-quarter results were weak in an absolute sense but were ahead of management's expectations as the company resets. However, we think the market may be reacting negatively to some warning signs of macro pressure and the new CEO's strategy.

PayPal’s early development of a network of merchants and consumers enabled the company to build and maintain a strong competitive position in the online payments channel. Historically, PayPal’s growth had been driven by the ongoing shift toward electronic payments and the rise of e-commerce, which the coronavirus pandemic temporarily accelerated. However, the company has faced headwinds as the pandemic-related positives reversed and new competition emerged. Management has sought to counter pressure on top-line growth by increasing focus on cost control and product innovation, with the goal of shifting to more profitable growth.

PayPal's shares rose again on Feb. 24 on reports that Stripe is interested in potentially acquiring the company.

PayPal shares rose about 6% on reports that the company could be a potential takeover candidate.

PayPal’s early development of a network of merchants and consumers enabled the company to build and maintain a strong competitive position in the online payments channel. Historically, PayPal’s growth had been driven by the ongoing shift toward electronic payments and the rise of e-commerce, which the coronavirus pandemic temporarily accelerated. However, the company faced headwinds as the pandemic-related positives reversed and new competition emerged. Management has sought to counter pressure on top-line growth by increasing focus on cost control and product innovation, with the goal of shifting to more profitable growth.

PayPal had a weak end to the year, and the lack of progress in accelerating growth has prompted a CEO change, with current HP CEO Enrique Lores set to take over. The market has responded negatively, taking the shares down almost 20% in Feb. 3 trading.

Overall results largely held up better than expected in the third quarter, as PayPal showed strength across its business.

PayPal’s development of a network of merchants and consumers early in the evolution of e-commerce allowed the company to build and maintain an enviable competitive position within the online payments channel. Historically, PayPal’s growth had been driven by the ongoing shift toward electronic payments and the rise of e-commerce, which the coronavirus pandemic temporarily accelerated. However, the company ran into headwinds as the positives from the pandemic reversed and new competition arose. Management has attempted to combat the pressure on top-line growth with a greater focus on cost control and product innovation, with the ultimate goal of shifting toward more profitable growth. We see this evolution as the right move, but it will likely take some time to fully execute. Additionally, PayPal's online focus leaves it relatively exposed to a downturn in the economy, as online purchases tend to be discretionary. If the macro picture changes for the worse, this could offset any underlying improvements in the near term.

PayPal's second quarter was mixed, in our view, but the market appears to be focused on the lack of improvement in volume growth

In our view, PayPal's first-quarter results contained no major surprises and largely showed a continuation of recent trends. We think the company is making progress in shifting toward profitable growth.

While we see the direct impact of the tariffs proposed by the Trump administration on payment processors as limited, the indirect effects could be materially negative.

PayPal’s development of a network of both merchants and consumers early in the evolution of e-commerce allowed the company to build and maintain an enviable competitive position. Historically, PayPal’s growth had been driven by the ongoing shift toward electronic payments and the rise of e-commerce, which the coronavirus pandemic temporarily accelerated. However, the company ran into headwinds as the positives from the pandemic reversed and new competition arose. Management has attempted to combat the pressure on top-line growth with a greater focus on cost control and product innovation, with the ultimate goal of shifting toward more profitable growth. We see this evolution as the right move, but it will likely take some time to fully see the results. Additionally, PayPal's online focus leaves it relatively exposed to a downturn in the economy, as online purchases tend to be discretionary. If the macro picture changes for the worse, this could swamp any underlying improvements in the near term.

All in all, we see little in PayPal’s investor day to alter our view of the narrow-moat company’s prospects. Management outlined some new plans, such as unifying its platforms and improving its small merchant offerings. We think these ideas make basic sense, and it is important for companies like PayPal to consistently adjust their approach and adapt to changes in the payment landscape. But we don’t see any of the new ideas unveiled at the investor day as dramatic shifts, and at this point we believe execution of the company’s current strategy is the primary consideration. We will maintain our $104 fair value estimate and see shares as undervalued.

PayPal’s development of a network of both merchants and consumers early in the evolution of e-commerce allowed the company to build and maintain an enviable competitive position. Historically, PayPal’s growth had been driven by the ongoing shift toward electronic payments and the rise of e-commerce, which the coronavirus pandemic temporarily accelerated. However, the company ran into headwinds as the positives from the pandemic reversed and new competition arose. Management has attempted to combat the pressure on top-line growth with a greater focus on cost control and product innovation, with the ultimate goal of shifting toward more profitable growth. We see this evolution as the right move, but it will likely take some time to fully see the results.

Narrow-moat PayPal had previously warned that fourth-quarter growth would be a bit soft as the company transitions to a more profitable base of business, and that was indeed the case. We think weak headline results and a cautious approach to 2025 guidance sparked a negative reaction from the market. However, we think management’s strategy is sound and lays the groundwork for solid growth and modest margin expansion over time. We will maintain our $104 fair value estimate and see shares as undervalued.