PayPal‘S (NASDAQ:PYPL) Its share price is up 41% this year as the digital payments leader has tried to put its struggles behind it under a new CEO. Is it still worth investing in anticipation of a long recovery? Let’s take a fresh look at the business model, the most pressing challenges and the valuations to make a decision.
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PayPal owns one of the largest digital payment platforms in the world, but much of its revenue came from its former parent company, eBay. That’s why it was worrying when eBay replaced PayPal with its Dutch competitor Adyen as her payment platform of choice from 2018 to 2023.
The pandemic temporarily masked PayPal’s loss of eBay business as more consumers and businesses relied on digital payments. But growth in active accounts, total payment volume (TPV) and revenue slowed after the tailwinds disappeared. Inflation, rising interest rates and other macroeconomic headwinds to consumer spending have exacerbated the slowdown in 2023.
|
Metric |
2019 |
2020 |
2021 |
2022 |
2023 |
YTD 2024 |
|---|---|---|---|---|---|---|
|
Active account growth |
14% |
24% |
13% |
2% |
(2%) |
1% |
|
TPV growth |
23% |
31% |
33% |
9% |
13% |
11% |
|
Sales growth |
15% |
21% |
18% |
8% |
8% |
8% |
Data source: PayPal.
The biggest problem for PayPal is its inability to get more active accounts. The number of active accounts rose 1% year over year to 432 million in the third quarter of 2024, but that was well below the 750 million active accounts it once aimed to reach by 2025.
PayPal abandoned that long-term goal in early 2022 and is clearly struggling to acquire new users as it faces stiff competition from other payment platforms like Block‘s Cash App, Stripe and Apple Pay.
To offset that pressure, PayPal relied more on its Venmo peer-to-peer payment app and Braintree back-end payments platform to grow its TPV. But that’s a double-edged sword, because these two higher-growth platforms actually generate lower take rates (the percentage of each transaction they keep as revenue) than the namesake platform. As a result, PayPal’s annual transaction rate has fallen every year since its spin-off from eBay in 2015.
So looking ahead, PayPal will need to grow its average TPV per existing account if it fails to win over new consumers and businesses. Under Alex Chriss, who took over as CEO last year, it has introduced new features including the FastLane checkout service, the Smart Receipts tool and the Cash Pass rewards program. It has also expanded its proprietary ‘buy now, pay later’ platform to tackle disruptive challengers such as To confirm and Block’s Afterpay, and it is using its own PayPal USD stablecoin to enable more cross-border transactions.
