As PayPal (PYPL) prepares to release its next earnings report on May 5th, whether investors should buy the stock following its sharp decline has become a focal point for the market. The fintech giant is facing severe existential challenges.
Over the past 12 months, PayPal’s stock price has fallen more than 40%. Slowing sales growth, macroeconomic and competitive pressures, as well as unclear plans, have all weighed on its share price, causing it to underperform many of its fintech peers. The root of the problem can be traced back to 2021, when PayPal announced an ambitious target of reaching 750 million active accounts by the end of 2025, a plan it ultimately abandoned. Its total active accounts only increased marginally from 426 million in 2021 to 439 million last year.
The company primarily attributes the growth slowdown to inflation curbing consumer spending, but it also faces intense competition from other digital payment platforms. The involuntary decoupling from eBay (EBAY) from 2018 to 2023 exacerbated this pressure. Over the past year, revenue growth has been in the single digits due to difficulties in acquiring new customers, significantly increasing transaction volume, and raising transaction fee rates.
In response, PayPal is relying more heavily on its branded payment platform, the Venmo app, debit cards, and its “buy now, pay later” services to drive revenue growth. While these core platforms handle lower total transaction volume, they yield higher average payment values. To stabilize profit margins, the company is also scaling back its backend payment platform, Braintree, which processes high volumes but at lower unit prices. Concurrently, as sales growth slows, PayPal continues to cut costs and repurchase shares to boost earnings per share.
Recently, rumors have resurfaced about the possibility of PayPal being acquired. According to sources familiar with the matter, payment processing company Stripe has expressed preliminary interest in potentially acquiring all or part of PayPal. The discussions are currently in the early stages, and it is uncertain whether a deal will be reached. Previous reports indicated that after its stock price plummeted, wiping out nearly half its market value—accumulating a drop of approximately 46% over the past year—PayPal attracted acquisition interest from potential buyers. The San Jose, California-based company has met with several banks. Following this news, PayPal closed up 5.76% on Monday and rose another 6.74% on Tuesday.
Founded in the late 1990s, PayPal was an early participant in the digital payments space. However, since then, it has faced challenges in modernizing its payment technology, while competitors like Apple (AAPL) and Google (GOOGL) have captured market share. Stripe President Patrick Collison acknowledged that PayPal has experienced a difficult period in recent years, noting that the industry landscape has undergone tremendous changes with the emergence of Apple Pay and Google Pay. He declined to comment on any hypothetical mergers and acquisitions.
According to the company’s latest fourth-quarter results released, PayPal’s profit and revenue both fell short of analysts’ expectations, and the report indicated a continued slowdown in payment transaction volume.
