PayPal Holdings, Inc., based in San Jose, California (PYPL) is a leading digital payment company. The company operates a technology platform that enables digital payments on behalf of consumers and merchants worldwide. PYPL offers payment solutions under the names of PayPal, PayPal Credit, Venmo, Xoom, Hyperwallet, Zettle, Honey, Paidy and Braintree.
The company operates in approximately 200 markets and 100 currencies to enable consumers to send and receive payments.
PYPL has plunged 52.5% year-to-date and 66.1% over the past year to close the latest trading session at $92.70. It is currently trading 68.8% below its 52-week high of $296.70, which it reached on September 8, 2021.
The digital payments company has lost its pandemic-era shine. PYPL has seen solid growth during the pandemic due to a significant increase in contactless and digital payments. However, the company continues to see its shares deflate due to a post-pandemic downturn, compounded by the loss of longtime partner eBay Inc. (EBAY), to its European competitor, Adyen.
Additionally, the current macroeconomic environment has hampered the company’s ability to grow as decades-long high inflation has dampened consumer spending.
Investors have been bearish on PYPL due to deteriorating financials and slowing growth. In the second quarter of fiscal 2022 ended June 30, 2022, the company’s revenue grew nearly 10% year-over-year, driven by the expansion of its peer-to-peer payment application -peer Venmo. However, its non-GAAP net income and net earnings per share were down 20.8% and 19.1% year-over-year, respectively.
Additionally, the company’s key growth rates have slowed significantly over the past year. PYPL’s number of active accounts grew 6% year-over-year to 429 million in the second quarter, from 16% a year earlier. Its total payments volume (TPV) growth was 13% year-over-year, compared to 36% in the prior year quarter. Additionally, its deal growth slowed from 27% to 16% year-over-year in the second quarter.
Here’s what I think could influence PYPL’s performance in the coming months:
Bad finances
For the second quarter of fiscal 2022, PYPL’s operating expenses increased 18.2% year over year to $6.04 billion. Its non-GAAP operating profit fell 21.3% year-over-year to $1.30 billion. Its non-GAAP net income fell 20.8% from a year earlier to $1.08 billion. The company’s non-GAAP net earnings per share were $0.93, down 19.1% year-over-year.
Weak growth prospects
Analysts expect revenue to grow 10.4% year-over-year to $6.82 billion in the fourth quarter of fiscal 2022 (ending September 2022). However, the consensus EPS estimate for the current quarter is expected to come in at $0.95, down 14% from the same period in 2021.
Additionally, analysts expect PYPL’s EPS for fiscal year 2022 (ending December 2022) to decline 14.7% from the prior year period to $3.93.
Low profitability
PYPL over 12 months Gross margin of 43.47% is 13% lower than the industry average of 49.94%. Its 12-month ROTC of 2.64% is 3.7% below the industry average of 2.74%. Additionally, the stock’s trailing 12-month asset turnover rate of 0.35% is 45.3% below the industry average of 0.64%.
Foamy Rating
In terms of forward non-GAAP P/E, PYPL’s 23.62x is 27.3% above the industry average of 18.55x. Its EV/Forward Sales of 3.92x is 49.5% above the industry average of 2.79x. Likewise, the stock’s forward EV/EBITDA of 16.73x is 30.9% above the industry average of 12.78x.
Additionally, PYPL’s price-to-sales ratio of 3.85x is 39.2% higher than the industry average of 2.76x. Additionally, the stock’s 5.09x forward price/pound is 23.5% above the industry average of 4.13x.
POWR ratings reflect bleak outlook
PYPL has an overall rating of D, which translates to Selling in our own POWR Rankings system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.
PYPL is ranked #39 out of 48 stocks in the D rating Consumer Financial Services industry.
Beyond what I said above, we also assigned PYPL ratings for Growth, Sentiment, Quality, Value, Stability, and Momentum. Get all the PYPL ratings here.
Conclusion
PYPL announced weak financial results in the second quarter. Additionally, the company is expected to experience slower near-term growth as it continues to suffer from macroeconomic headwinds, such as high inflation, interest rate hikes and shifts in consumer habits.
Given PYPL’s disappointing financials, bleak growth outlook, above-industry valuation and poor profitability, we think it would be wise to steer clear of the stock now.
How PayPal Holdings, Inc. (PYPL) Works Up to his peers?
PYPL has an overall POWR rating of D. One might also check out these other consumer financial services stocks with a B (buy) rating: Ezcorp Inc. CI A (EZPW), OneMain Holdings, Inc. (OMF) and Regional Management Corp. (RM).
Shares of PYPL fell $1.65 (-1.78%) in premarket trading on Monday. Year-to-date, the PYPL is down -50.84%, compared to a -14.03% rise in the benchmark S&P 500 over the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using its fundamental approach to stock analysis, Mangeet seeks to help retail investors understand the underlying factors before making investment decisions. After…
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