PayPal Faces Increased Competition But Grows

PayPal shares have been trading largely sideways so far this year, being excluded from the tech boom as competition keeps popping up.

The Increasingly Saturated Market

PayPal is far from the heady days of the pandemic boom for internet transactions when the stock price topped over $300/shr. The lifting of the lockdown had its effect, but what drove optimism for PayPal through 2020 also drove the rise of competitors. Two new competitors can be increasingly worrisome for the company: The Federal Reserve and its former owner, Elon Musk, bringing X.com back.

PayPal had a distinct advantage in facilitating payments online. But now, most banks offer digital platforms and around-the-lock transfers. PayPal has struggled more in Europe than in the US thanks to SEPA transfers which settled almost instantaneously. The Fed recently introduced the American version, FedNow, which allows for money transfers at any time of the day and reduces demand for credit cards. This also eats into the other selling point for PayPal: Security.

A Chance for the Future?

While PayPal hasn't grown at the stratospheric amounts forecast during the pandemic, it still has managed ~6% organic growth and raised its guidance this year. Earnings are forecast to grow faster than revenue as the company sees the results of cost-cutting initiatives. Earnings are expected to rise 25% over the last year to $1.16, while revenue is seen increasing 6.6% to $6.81B.

The key metric for PayPal is its Total Payment Volume (TPM), representing its transaction growth. But for investors looking at dividends, free cash flow, which has remained relatively stable, could be another important factor to see if the increasing profits will translate into better shareholder payouts. In the meantime, a focus on consumer behavior could drive the market in the coming days as earnings season shifts into retailers. Results from Amazon could influence PayPal’s share price as well. Former Twitter (now X) has said it would be moving into the online payment space but hasn't provided any details on a timeline.

PayPal Wedge Points to ‘Low In’

PayPal’s share price might have put a low in, following the completion of a terminal wedge at $59. The stock price just broke the upper trendline upwards, leaving swing supports at $72 and $66. Below $62.50, the risk of additional declines will increase. Conversely, holding the line will expose $89 should the regional top at $79 give way, which in turn may open up triple digits once again.

Source: SpreadEx / Paypal Holdings

Key Takeaways

PayPal's stock has been trading sideways this year, facing increased competition in the market. The lifting of lockdowns and the rise of competitors, including the Federal Reserve and X.com (owned by Elon Musk), have impacted PayPal's growth. PayPal's advantage in facilitating online payments has diminished as most banks now offer digital platforms and instant transfers. The introduction of the FedNow system further reduces demand for credit cards and affects PayPal's security selling point. Despite these challenges, PayPal has achieved 6% organic growth and raised its guidance for the year. Investors should pay attention to metrics like Total Payment Volume (TPM) and free cash flow. Consumer behavior and earnings from companies like Amazon may also influence PayPal's share price.