PayPal (PYPL) Competitive Pressures Might Hinder Its Rebound

Market is expecting PayPal upcoming results to portfolio strength, which has been helping it maintain a deep and trusted relationship with merchants and consumers.

But there some concerns and challenges that is likely to impact PayPal in the second quarter of 2024, coming from market uncertainties, high inflation, unfavorable foreign exchange fluctuations and sluggish trends in consumer spending.

PayPal expects revenues to grow 6.5% on a spot rate basis and 7% on a currency-neutral basis from the year-ago quarter. Consensus Estimate for second-quarter revenues is pegged at $7.78 billion, indicating 6.8% growth from the figure reported in the year-ago quarter.

The company expects non-GAAP earnings per share to rise in the low-double-digit percentage on a year-over-year basis. The consensus mark for second-quarter earnings is pegged at 99 cents per share, indicating a fall of 17.2% from the figure reported in the year-ago quarter. Earnings estimates have been revised upward by 1.05% over the past 30 days.

Based on 31 Wall Street analysts offering 12 month price targets for PayPal Holdings in the last 3 months. The average price target is $74.92 with a high forecast of $90.00 and a low forecast of $65.00. The average price target represents a 28.53% change from the last price of $58.29.

Considering that PayPal might be able to ride on its strong portfolio strength, there might be a chance of PayPal giving a higher price target post earnings.

But I would like to see the challenges that PayPal might be facing from its payment space.

Every business owner has at least considered using PayPal, but many quickly find themselves looking for alternatives. Every business has its reasons to look for PayPal competitors. Some of the most common complaints about PayPal include:

Not enough seller protection

High fees cutting into the bottom line

Delays in receiving their payments

Lack of customisation

Lack of integrations

The need for a dedicated merchant account

These are the challenges that PayPal is still working to overcome, but there are more and more incumbents coming into the market especially the payment space, so the question is not how they do it, or rather how fast can PayPal innovate.

PayPal currently has occupied the top spot in the payment domain with 346,078 with a 39.21% market share. But this could change as we have seen its competitors catching up pretty quickly in recent years, especially Stripe.

Currently Stripe is second with 38% market share and the domains is also increasing, currently sits at 335,395. So PayPal really need to show that they are also able to eliminate the challenges coming from this payment space, given that the consumer spending will remain sluggish as there are market uncertainty.

Most small business owners have at least heard of Stripe. This is a widespread service in the United States and Canada that lets you accept payments from anywhere. The fees are transparent, at 2.9% + $0.30 per transaction online. In-person transactions cost 2.7% + $0.05.

If we were to follow PayPal, despite they are top in market share, but their stock price is not giving a positive return to investors.

So we can see it from another light, this might be a good opportunity to buy as it might appear undervalued, but we need to consider how PayPal would be navigating their revenue streams as consumer spending formed quite a large portion on PayPal business.

As market uncertainities continue, consumer spending have turned cautious, with the rate cut coming and US dollar exchange rate might play a part in PayPal overall revenue.

Despite the positive sentiment market might have towards its second quarter earnings, the sentiment gathered from its stock price trading does not seem to indicate that traders and investors are confident on PayPal.

As last Friday (26 July) solid performance by the stocks, PayPal does not seem to gain much from it, with the consumer sentiment data release indicating consumer sentiment remains guarded due to inflation, election uncertainty, higher interest rates, and a softening labor market.

I would think we should monitor PayPal price action today (29 July) to see if there is any sentiment or pressure from investors that could move the stock price.

PayPal's recent enhancements, strong financial health, and potential for earnings beat suggest a rebound is possible despite competitive pressures. While we might think that the competition from Apple BNPL and the payment space incumbents gaining market share, these might sound misguided, but these concerns are to be taken seriously.

PayPal current stock price is an indication of how its potential for a rebound could be building, during a broad solid market performance, PayPal does not gather enough strength to show signal or confirmation that we could be expecting a strong stock price move on the potential of an earnings beat.

I would think we monitor its price action closely today (29 July) to see if there is opportunity for a BUY potential.

Appreciate if you could share your thoughts in the comment section whether you think PayPal would show strength in its stock price prior to its earnings with an earnings beat expectation?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.