By Telis Demos

Make new friends, but keep the old. PayPal is striking a lot of new partnerships in the payments and commerce business these days. But its original cohort is still the most important: consumers.

The digital-payments business has gotten a lot harder in recent years. What might have been a steady, yearslong shift to e-commerce for traditional businesses like restaurants or grocery stores happened in a flash during the pandemic. So did a change in consumers' payment habits, like tapping to pay with digital wallets via their phones.

All that pulled forward a surge in growth -- but the letdown has been harsh, especially as digital-payment technologies have gotten increasingly commoditized and fiercely competitive with the rise of players such as Apple.

The journey of PayPal's stock since the pandemic has been extreme. Its shares started 2020 at roughly $110 a share. They touched a record high of $310 in July 2021. Today, they trade at around $72.

In response to competitive pressure, payments players have sought to diversify their strategies to offer total packages to their customers. For PayPal, some of that has come on the side of its business serving merchants. These moves will help it fill out the tool kit for competing with just about anyone. By expanding a partnership with Verifone, a maker of physical point-of-sale devices, it can better provide "omnichannel" services to big merchants online and in-stores. By partnering with JPMorgan Chase's payments business, PayPal can offer its speedy new checkout experience to more merchants globally.

PayPal regained some momentum in profitability and user growth last year, which helped power a roughly 21% share-price gain over the past 12 months. That beat peers such as Adyen and Block, and even Mastercard, in that time. But the reaction to its investor day on Tuesday was muted, with shares down about 4% since Monday. Its shares are off about 16% so far this year.

That might be because the market is keenly focused on the other side of PayPal's business, which touches individuals directly. The not-so-secret weapon for PayPal is its consumer base. Analysts have been laser-focused on the company's so-called branded checkout volume. That is generally when someone uses a PayPal button or app to buy something. The focus is often on whether this business is growing faster than e-commerce overall, as an indicator of its market share gains.

The company said its aim is to accelerate branded checkout total payment volume growth to between 8% and 10% annually by 2027. That would be a big jump from 2024's 6% currency-neutral growth rate.

For PayPal to win with merchants behind the scenes, its best argument would be to show them that it can continue to deliver its loyal users to be their customers, better so than rivals such as Apple, Klarna, Affirm and others.

"We are the only ones with a two-sided ecosystem, with access to merchants at scale, with access to 80 million-plus shopper profiles, and access to hundreds of millions of consumers on an open, agnostic platform, to be able to deliver that next version of commerce," Chief Executive Alex Chriss told analysts on Tuesday.

One thing PayPal aims to do is better capitalize on Venmo, including the "Pay with Venmo" service, setting a revenue aim of over $2 billion for Venmo by 2027. Venmo has been a huge brand and customer-acquisition asset for PayPal, as the product's name became a verb and a ubiquitous peer-to-peer payment method. But the company has long worked to fully monetize its apparent potential with add-on products. Notably, Venmo recently became a way to pay for JetBlue flights, a way for a Venmo transaction to generate a merchant fee for PayPal.

In addition, PayPal's new Fastlane product can help customers speed past guest checkout, a major way for PayPal to gain overall market share. Then there are personalized incentive offers. "We are going to turbocharge rewards and purchasing power like never before," Diego Scotti, general manager of PayPal's Consumer Group, told analysts on Tuesday.

The company's recent ad campaign, featuring star Will Ferrell, shows him buying things from clothing to coffee in stores. "I want to pay with you everywhere," he sings.

But do consumers really want to pay with PayPal everywhere? This is what the market needs to hear more about. PayPal has traveled down many product paths before -- QR codes, coupons, even contemplating a tie-up with Pinterest. Investors may be wary of rekindling their friendship with PayPal before it definitively shows it has improved its old-school habits.

Write to Telis Demos at Telis.Demos@wsj.com

(END) Dow Jones Newswires

February 27, 2025 05:30 ET (10:30 GMT)

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