PayPal’s Resurgence: A New Era of Growth?
A Fresh Perspective at the Helm
The appointment of Alex Chriss as CEO of PayPal Holdings in September 2023 marked a significant turning point for the company. With a background at Intuit, Chriss brought a wealth of experience to the role, and his impact has been palpable. Since his arrival, the stock has surged by over 50%, outpacing the broader market.
Revitalizing the Checkout Experience
Chriss has focused on revitalizing PayPal’s branded checkout platform, a crucial aspect of the company’s strategy. By reinvigorating the top three checkout experiences, PayPal has seen measurable results, including a 100- to 400-basis-point improvement in conversions on vaulted checkout and a 15% to 20% increase in the attachment of buy now, pay later loans to transactions.
Cost-Cutting and Margin Improvement
In addition to enhancing the checkout experience, Chriss has implemented cost-cutting measures, resulting in a 194-basis-point improvement in operating margin to 18.8% in Q3. This has enabled management to increase full 2024 earnings guidance from low to mid-teens growth to high-teens growth.
A Notable Pivot
While it’s still early days, the data suggests that PayPal could significantly increase engagement among its 223 million monthly active accounts as the rollout broadens. This pivot has contributed to the stock’s strong performance over the past 15 months.
A Historical Perspective
Despite the recent rally, PayPal’s stock remains 70% off its former high of over $300 in 2021. However, there are encouraging signs that the trend may have bottomed and begun reversing. The company’s steady gross margin declines, a factor in the stock’s sell-off, appear to be stabilizing.
Earnings Growth and Valuation
PayPal generates higher earnings-per-share today than in 2021, despite lower margins, thanks to higher revenue. The stock trades at a forward P/E ratio of 18, relatively cheap compared to its historical valuation. Analysts estimate that PayPal will grow earnings by an average of 11% annually over the long term, making the stock an attractive option for long-term buyers.
A Buy Recommendation
Considering PayPal’s encouraging business results, cost-cutting efforts, and attractive valuation, the stock is a buy, especially if the company continues to trend in the right direction. With a PEG ratio of 1.6, PayPal offers a compelling opportunity for investors seeking long-term growth.
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