After a prolonged period of underperformance, PayPal (NASDAQ: PYPL) is finally showing signs of a robust comeback. The fintech company, with over 30% year-to-date gains, has outperformed the S&P 500, providing a much-needed win after three years of significant decline.
Several key factors are now contributing to renewed investor confidence, positioning PayPal for further growth. As of the close on October 19, PYPL stock is valued at $80.84, having gained 0.7% over the past five trading days.
Growth drivers behind PayPal’s momentum
Several key growth drivers are fueling PayPal’s recent success. Initially, PayPal projected flat earnings at the start of 2024, which dampened market sentiment.
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However, by the Q2 earnings call, PayPal had raised its outlook to “low to mid-teens” earnings growth for the year, reigniting investor confidence and contributing to the stock’s price surge.
Strategic partnerships have also played a crucial role in PayPal’s growth. The company recently announced a partnership with Dutch payments firm Adyen to offer Fastlane, a checkout tool for U.S. enterprise and marketplace customers.
Fastlane boasts an 80% conversion rate and is expected to drive significant revenue in the coming years.
Furthermore, PayPal’s collaborations with Amazon (NASDAQ: AMZN) to integrate PayPal into its “Buy with Prime” program and with Shopify (NYSE: SHOP) to process U.S. credit and debit card transactions further strengthen its competitive position in the payments space.
PayPal is also expanding into advertising, having launched PayPal Ads, a service that allows brands to advertise across its platforms, including Venmo and Honey. By 2025, this service is expected to reach over 30 million merchants, creating a significant commerce-media ad network and opening up a new revenue stream.
Moreover, PayPal’s expansion into cryptocurrency services, enabling U.S. merchants to buy, hold, and sell crypto directly from their business accounts, marks a bold move in tapping into the growing retail demand for digital assets.
Analysts’ outlook on PayPal
Analysts are growing increasingly bullish on PayPal’s outlook. Citi recently raised its price target from $83 to $94, maintaining a ‘Buy’ rating. Mizuho followed suit, increasing its target from $90 to $100 while also keeping an ‘Outperform’ rating.
Wells Fargo raised its target from $70 to $75 but maintained an ‘Equal Weight’ rating, with Stephens similarly lifting its target from $75 to $85, highlighting competitive pressures and stable yet decelerating payment volumes as key concerns.
In contrast, Bernstein downgraded PayPal from ‘Buy’ to ‘Hold’, citing limited upside potential at current price levels, though it still raised its price target from $75 to $80.
Technical analysis: A breakout in the making?
From a technical standpoint, PayPal’s stock is demonstrating clear bullish momentum. According to insights from a strategist under the pseudonym Officer Donut, PayPal has broken out of a falling wedge pattern, a typically bullish signal.
PayPal’s stock has gained 30% YTD, and this breakout suggests that the stock could continue its upward trend as it retests previous resistance levels.
“From my point of view, it looks pretty good. PayPal should be perfectly positioned for the ad market because they should have a lot of customer data to perfectly identify current consumer trends.If you think about it, PayPal can generate revenue twice, firstly by offering ads and secondly by fees for payment processing” – he says
He highlights that by leveraging its extensive transaction data, PayPal can offer highly targeted ads, potentially doubling its revenue streams from both payment processing and ad sales.
This approach strategically positions PayPal to capture a larger share of the expanding commerce-media market, laying the foundation for sustained long-term growth.
Despite facing competition from tech giants like Apple (NASDAQ: AAPL) and Alphabet (NASDAQ: GOOGL) in the digital payments space, analysts remain optimistic about PYPL’s ability to maintain its momentum.
As the company continues to evolve and expand its offerings, it is well-positioned for strong performance through the rest of 2024. Investors now await PayPal’s Q3 earnings call on October 29 for further insights into its ongoing transformation and growth trajectory.
