The Paypal stock price has tumbled 40% from its July $310 high. Notably, this is the largest drop the fintech company has suffered since going public in 2015.
While many growth stocks have suffered similar trends this year, the Paypal stock is standing out for me as an intriguing buying opportunity. So should I add the stock to my portfolio today?
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How the bears took control
What’s behind the Paypal stock price almost halving? Primarily, the company’s third-quarter earnings report was disappointing. Not only did it miss on revenue and earnings expectations, its guidance for FY2022 was underwhelming.
The company, long synonymous with eBay, is in a transition phase. This almost two decade long partnership has come to an end. Indeed, this is one reason for revenue and earnings growth slowing. Additionally, management cited fiscal stimulus ending and global supply chain issues as factors impacting the top and bottom line.
Another bearish element revolves around the growing ‘buy now pay later’ (BNPL) market. This year, Amazon and Affirm have partnered, giving Amazon customers the opportunity to split up the cost of applicable purchases into multiple payments. In addition, Block (formally Square) rocked the fintech world when it agreed to acquire ‘buy now, pay later’ provider Afterpay. Add to the mix Klarna aggressively growing its footprint in North America and Europe. Consequently, Paypal’s BNPL product is merely one of many.
But the Paypal stock price has never had a period quite like this and the chart below puts the last few months into perspective.
Paypal stock bull case
I sympathise with the bear case. Indeed, thinking short term, I would expect a bumpy ride and potentially more pain for Paypal shareholders. However, long term I see a lot to be excited about.
Firstly, Paypal may have split from eBay but it has expanded and deepened a number of exciting partnerships. Teaming up with Amazon to enable US customers to pay with Venmo at checkout is particularly exciting. Its also built relationships with Walmart, Booking.com, and Asos. There may be concerns over growing competition but Paypal boasts to be the most accepted digital wallet. Impressively, over 75% of the top 1,500 largest North American and European merchants offer Paypal at checkout.
Secondly, and unlike Square, Paypal didn’t need to make a big purchase to release its BNPL offering. Instead, it built it in house, making it available in Australia, France, Germany, the UK, US, Spain, and Italy. It has, however, made an interesting acquisition of Paidy to try to crack Japan, the world’s third-largest e-commerce market. There is huge growth potential here and not only because of its size. In Japan, 70% of digital commerce is still paid for by cash upon delivery.
Weighing it all up
While I don’t consider Paypal stock to be cheap, it has history of growing revenue and monthly active users. With the deals and relationships made over the last year, I expect growth to continue. Paypal could even be an inflation hedge as higher prices should increase revenues from processing payment volumes. I’m also interested to see how Paypal’s moves into cryptocurrency and rumours of a stock-trading platform acquisition develop. All things considered, I see this as an alluring long-term opportunity for my portfolio.