The market hasn't been treating PayPal Holdings (PYPL 3.52%) shareholders very well over the past few years. It's not unwarranted, of course; PayPal has been struggling with a number of issues, from growing competition to slowing growth and declining profits. It's like a dinosaur effect in action, and PayPal stock is reflecting that fact. It's 77% off its highs.
The company's newish CEO, Alex Chriss, has made several changes, and the business is reflecting new developments. The turnaround isn't over yet, but it looks like it's on the way. And shareholders just got excellent news from Chriss.
PayPal is one of the largest payment processors in the world, processing $1.7 trillion in total payment volume over the trailing 12 months. It has 434 million active accounts, which include both the consumer and merchant side, and more than 200 million people engage with it on a monthly basis. It's still a dominating force in digital payments and commerce, which is why it's been urgent to fix its problems.
There have been several issues pressuring PayPal's business over the past few years, starting with increasing competition. Companies like Apple and Alphabet have been releasing their own digital-payments functions, and they're quick and user friendly. Other companies, like Block, have complete digital-payments systems, like its Cash App, and have been grabbing market share. This is where PayPal's size works against it, because it's harder to change large, legacy systems.
Another major issue has been that most of its growth is coming from its unbranded checkout business, Braintree. That's been leaning on its margins and pulling them down. PayPal made strides in fixing that in the 2024 fourth quarter, but its price-to-value strategy negatively impacted growth even though it was more profitable.
PayPal has been in flux, and although there's been progress, the market is still pessimistic. However, at its investor meeting last week, Chriss gave over some important and welcome updates.
The company made several announcements, including a new commerce framework called PayPal Open. It's meant to be a full-service commerce platform that integrates with a merchant client's current systems. "Our vision is for PayPal to be the commerce platform powering the global economy," Chriss said. He highlighted PayPal's speed of innovation and confirmed that it has "a clear strategy designed to accelerate profitable growth for years to come."
The company described the model it's moving away from as static and one-size-fits-all with multiple parts and the new model as personalized, dynamic, and all-in-one. Right now, PayPal has many pieces: PayPal, Venmo, Braintree, and several others. To compete today with other commerce platforms like Shopify, it needs to offer an expanded and unified platform.
What was most important, though, was its updated guidance. As of its 2024 Q4 report, released in early February, it's expecting transaction margin dollars to increase 4% or 5% in 2025. The transaction margin dollar piece means that it's making more money from its unbranded checkout business. It's guiding for adjusted earnings per share (EPS) of $4.95 to $5.10, or an 8% increase at the midpoint.
At the investor meeting, Chriss gave an additional outlook that was even better. It's guiding for high single-digit transaction margin dollar growth through 2027, with low-teens growth in adjusted EPS. Longer term, it envisions transaction margin dollar growth of at least 10% and adjusted EPS growth of at least 20%. It sees the EPS growth coming from the increases in transaction margin dollars, careful operating expense management, and disciplined share buybacks.
PayPal stock didn't get any love from the market even after it released this update. It's an ambitious plan, but there are a lot of moving parts, and investors will want to see some practical action. There's no guarantee that any of this will happen.
However, so far, Chriss has demonstrated that he can translate his strategy and goals into real results. I anticipate PayPal coming through on the product plans, and it could boost the bottom line and the stock price. Now could be a good time to take a position in PayPal stock.
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