PayPal stock price analysis: the sky is the limit for PYPL?

PayPal stock price rally has stalled even as American equities surged and the company published strong financial results. The PYPL share price jumped to $81.35 on Thursday, a few points below the year-to-date high of $83.71. 

PayPal is still one of the best-performing companies this year as it jumped by over 60% from its November last year’s low. It is also hovering near its highest level since February 2023.

PayPal third quarter earnings review

The most recent results confirmed that PayPal was doing modestly well as the management continues to execute its turnaround strategy.

Its numbers showed that the total payment volume or TPV jumped by 9% to $422.6 billion during the quarter. This volume figure was higher than what analysts were expecting and what it had guided before that. 

PayPal also said that its revenue rose by 6% to $7.8 billion. Most importantly, there are signs that its cost-cutting measures are now starting to pay off as operating margin rose to 18.8% and its operating income rose by 18% to $1.5 billion. 

Most importantly, Alex Chriss, its CEO, believes that PayPal’s business will continue doing well this year as its growth steadies. He sees the transaction margin dollar growth coming in the mid-single-digits and its EPS to grow to the high teens. 

The company also added new customers for the first time in a long time. The number of active accounts rose by 1% to 432 million, while monthly active accounts jumped by 2% to 223 million. 

These increases are not too much. However, they mean that the trend of PayPal losing customers is nearing its end. 

PayPal’s turnaround is continuing

PayPal has done a lot of work to turn around its business. In January, the management announced that it would lay off 9% of its workers, a move that was aimed at reducing its costs. 

These 2,500 layoffs was PayPal’s way of saying that its business was no longer growing as it did in the past. 

In addition to layoffs, PayPal launched more solutions to boost its unbranded solutions, which simplify checkouts. For example, it launched Fastlane, a solution that it hopes will become a major player in commerce. Just recently, it partnered with Adyen, which incorporated it in its business.

PayPal also launched PayPal Everywhere, an omnichannel solution to ensure that customers save whenever they use its solution. It has also introduced a rewards solution, where users can save as much as 5% on their shopping. 

These actions are aimed at revitalizing its unbranded solutions that have come under pressure in the past few years as competition rises. Most of this competition is coming from wallet platforms like Apple Pay and Google Pay, and BNPL platforms like Klarna, Affirm, and AfterPay.

Read more: PayPal stock price forecast: PYPL comeback could be epic

New normal for PYPL

Still, it is worth noting that PayPal has now embraced a new normal that is significantly different from the past. 

A few years ago, PayPal was still a growth company that did not emphasize profitability much. The goal was to grow and gain market share in the payment industry. 

Today, that era is gone, and PayPal is now a value company that is growing at a relatively slower pace than it used in the past. It also hopes to continue maintaining its market share over time. 

The new normal means that the management is focusing more on profits and gradual growth. Analysts expect that its revenue will grow by 14% this year to $31.7 billion. They also see the revenue growing by less than 6% in the next financial year. 

This new normal explains why PayPal stock price has a reasonably low valuation metric. It has a forward price-to-earnings ratio of 20.4, lower than the five-year average of 45. 

PayPal also has a forward non-GAAP multiple of 17.7, also lower than the five-year average of 30. I expect that this divergence will continue over time. 

The average PayPal stock price forecast among Wall Street analysts is $89, higher than the current $81.35.

PayPal stock price analysis

PYPL chart by TradingView

The daily chart shows that the PYPL share price bottomed at $50.4 in November last year, and has now soared to above 80%. This recovery happened as the company continued to publish stronger-than-expected financial results and as traders cheered the turnaround.

The stock formed a golden cross pattern as the 50-day and 200-day moving averages crossed each other. It is also hovering at the upper side of the Andrew’s pitchfork tool and the ichimoku cloud indicator.

Therefore, the path of the least resistance for the PayPal stock price is bullish, with the next point to watch being at $91.67, the 23.6% Fibonacci Extension level. 

On the flip side, a drop below the double-top neckline level at $76.3 will invalidate the bullish view and point to more downside.