The market was quiet this morning after yesterday’s tech sell-off. The S&P 500 and the Nasdaq Composite fell in the previous session as investors reacted to a jump in bond yields. The jump in yields came on the heels of the announcement that President Biden would nominate Fed Chair Jerome Powell for a second four-year term. With Powell at the helm, the expectation is that the central bank will stay on its monetary path as the economy recovers.
A significant pullback may have created an extremely desirable entry point on the stock we’re featuring today. There are a few reasons to think that the bottom is near and that this household name will be back on its track to greatness soon.
The third quarter wasn’t a good quarter for PayPal Holdings (PYPL) as it missed quarterly revenue expectations and guided down Q4. Since the November 8th earnings call, PYPL share price has lost nearly 18%. Could this drastic pullback be overdone? Some of the pros covering the stock certainly think so.
The fintech giant reported third-quarter revenues of $6.18 billion, where the consensus was looking for $6.23 billion, citing the Delta variant and supply chain issues as influencing factors. Paypal cautiously revised its near-term guidance lower due to supply chain shortages that could impact the holiday season but says that it expects revenue to accelerate throughout next year. Zooming out to a broader timeframe, the current issues seem likely to be just a blip on the radar for this essential name in fintech and the BNPL space.
PayPal’s annual revenue grew from $9.24 billion in 2015 to $21.45 billion in 2020, as its number of active accounts rose from 179 million to 377 million. It ended the second quarter of 2021 with 403 million active accounts, and it expects its revenue to increase about 20% to $25.75 billion for the full year. By 2025, PayPal expects to double its annual revenue to over $50 billion nearly. Between 2021 and 2025, it expects earnings to rise at a CAGR of 22% and for its annual free cash flow to increase to almost double to over $10 billion.
PYPL’s share price was already suffering before the earnings call due partly to their abandonment of a prospective deal to buyout Pinterest (PINS) and a number of other influencing factors. The stock is down nearly 40% from its February 16th record close of $304.79.
Chatter about the PINS buyout renege may persist in the short term. Still, long-term minded investors may see now as an opportune time to strike considering that most of the factors weighing heavily on the stock are likely to dissipate eventually.
The colossal news from the earnings call that seemed to be overshadowed by other subjects was the upcoming integration of “Pay with Venmo” on Amazon.com’s (AMZN) checkout pages. “We believe this win solidifies PayPal’s competitive advantage as the largest two-sided payments network while also calming fears of disintermediation by Amazon Pay,” said UBS analyst Olivia Nesnay.
Loop Capital analyst Hal Goetsch recently initiated coverage of PayPal with a Buy rating and a $269 price target. PayPal operates the “most formidable 2-sided fintech enabled platform” in the market, Goetsch tells investors in a research note. The analyst says the consumer and merchant value propositions curated by the company drives “tremendous network effects.” The recent 30% pullback in the stock and “modest reset” of 2022 expectations presents an attractive entry point.
The current consensus among 47 polled analysts is to Buy PYPL stock. There are 39 Buy ratings, 5 Hold ratings, and 3 Sell ratings for the stock. A median 12-month price target of $275 represents a 45% upside from the current price.
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