PayPal is facing severe competition but is ready to resist it
Digital payment service PayPal Holdings Inc. (PYPL) has pulled back almost 40% from its 52-week highs. Among the reasons for the decline in quotations is growing competition, which makes investors doubt the company’s prospects.
However, PayPal has enough resources to withstand these challenges. During the particularly acute stages of the pandemic and the momentum in e-commerce in 2020, the volume of PayPal digital payments increased dramatically. At the beginning of 2021, the trend continued, and in July, the company’s shares reached a maximum, after which a decline began. The fact is that PayPal did not get its profit forecasts for the second quarter, although revenue and profit continued to grow steadily.
The company also looked mixed in the last quarter, and some Wall Street analysts lowered their outlook for its shares. The reasons for the decline were called, among other things, the growing competition in the digital payments market.
Other factors led to a further drop in stocks, for example, rising inflation and the omicron strain, as well as an investigation by the US Department of Justice about alleged financial incentives provided by Visa to leading payment companies, including PayPal. However, if PayPal cannot influence the course of the pandemic, then the company can cope with growing competition. So, now it has sound financial indicators: $5 billion of free cash flow and $7.8 billion in cash.
Provides a basis for waiting out the current downturn and investing in new technologies and acquisitions, which will ultimately help strengthen the competitive position.
PayPal recently invested in a business from the buy now — pay later (BNPL) category — PayPal Credit, and also bought Paidy, a BNPL firm from Japan. In addition, PayPal has launched a service for investing in cryptocurrency and is exploring creating its online platform for trading stocks.
In addition, having lost the contract with eBay, which accounted for about 3% of the volume of payments, the company signed an agreement with Amazon, which from next year will allow consumers to use PayPal’s Venmo service when placing an order. In addition, the company recently launched its PayPal “super app,” which includes all its services in one place.
Progress inside PayPal continues because the company has every reason to maintain its leading position in the market. Thus, the current decline may be an excellent moment to enter. Nevertheless, potential investors should consider the likely volatility against the background of macroeconomic factors.
